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Comprehensive Annual
Financial Report
Year Ended December 31, 2009
A Component Unit of the State of Oklahoma
He lthChoice
State and Education Employees
Group Insurance Board
Oklahoma
Comprehensive
Annual
Financial
Report
A Component Unit of the State of Oklahoma
Prepared by the Finance Division
Year Ended
December 31, 2009
This publication was printed by the Oklahoma State and Education Employees Group Insurance Board as authorized by 74 O.S. SUPP.
1989, Section 1301, et seq. 50 copies have been printed at a cost of $5.062 each. Copies have been deposited with the Publications
Clearinghouse of the Oklahoma Department of Libraries.
Table of Contents
Introductory Section
Letter of Transmittal – Includes exhibits 1–4. . . . . . . . . . . . . . 1-13
Executive Organizational Chart. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
List of Principal Officials . . . . . . . . . . . . . . . . . . . . . . . . . 15-16
Financial Section
Independent Auditors’ Report . . . . . . . . . . . . . . . . . . . . . 17
Management’s Discussion and Analysis . . . . . . . . . . . . . . . 19-26
Basic Financial Statements
Balance Sheets as of December 31, 2009 and 2008 . . . . . . . . . . . . . 27
Statements of Revenues, Expenses, and Changes in
Fund Equity for the Years Ended December 31, 2009 and 2008 . . . . . 28
Statements of Cash Flows for the
Years Ended December 31, 2009 and 2008 . . . . . . . . . . . . . 29
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . 30-51
Statistical Section Table No.
Fund Equity . . . . . . . . . . . . . . . . . . . . . . . 1 . . . . . . . . 52
Change in Fund Equity . . . . . . . . . . . . . . . . . . 2 . . . . . . 53-54
Operating Revenues by Type of Entity . . . . . . . . . 3 . . . . . . . . 55
Top Ten Sources of Premium Revenue . . . . . . . . . 4 . . . . . . . . 56
Demographic Statistics for Health Coverage
Number and Type of Participants. . . . . . . . 5A-5B . . . . .57-58
Monthly Premiums by
Coverage Type and Billing Categories . . . . . 6A-6C . . . . .59-61
Outside Insurance Carriers . . . . . . . . . . . . . . . 7A-7C . . . . .62-64
Introductory
Section
Oklahoma State and Education Employees Group Insurance Board
3545 N.W. 58th Street, Suite 110 Oklahoma City, OK 73112
405-717-8701 1-800-543-6044 www.healthchoiceok.com l l
l
July 7, 2010
To the citizens of the State of Oklahoma:
The comprehensive annual financial report for the Oklahoma State and Education Employees
Group Insurance Board (OSEEGIB) for the fiscal year ended December 31, 2009, is hereby
submitted. Responsibility for both the accuracy of the data, and the completeness and fairness of
the presentation, including all disclosures, rests with the management of the Oklahoma State and
Education Employees Group Insurance Board. To the best of our knowledge and belief, the enclosed
data is accurate in all material respects and is reported in a manner designed to present fairly the
financial position and results of operations of OSEEGIB. All disclosures necessary to enable the
reader to gain an understanding of OSEEGIB’s financial activities have been included.
The comprehensive annual financial report is presented in three sections: introductory,
financial, and statistical. The introductory section includes this transmittal letter, OSEEGIB’s
executive organizational chart, and a list of principal officials. The financial section includes
the independent auditors’ report, management’s discussion and analysis (MD&A), and the basic
financial statements. The statistical section includes selected financial and demographic information,
presented on a multiyear basis.
OSEEGIB is a special-purpose government entity engaged solely in business-type activities.
OSEEGIB is a legal trust which administers, manages and provides group health, dental, life and
disability insurance for active employees and retirees of state agencies, school districts and other
governmental units of the State of Oklahoma. OSEEGIB provides insurance solely to eligible
employees, dependents and retirees.
It is OSEEGIB’s mission to serve Oklahoma by providing, with the highest degree of
efficiency, a wide range of quality insurance benefits that are competitively priced and uniquely
designed to meet the needs of participants.
OSEEGIB provides a self-insured health, dental, life and disability program (HealthChoice),
which is actuarially rated to provide premiums adequate to meet the payment of all claims,
administrative expenses, and any change in reserve estimates. OSEEGIB maintains reserves to
provide for current claim liabilities as required. At the present time, OSEEGIB has not transferred
any risk of loss through reinsurance contracts.
Oklahoma State and Education Employees Group Insurance Board
2
Total Primary Participants
HealthChoice and HMO
Year Ended December 31, 2009
Exhibit 1
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
HealthChoice Participation
HMO Participation
Education
Active
State
Active
Education
Medicare
State
Medicare
Education
Pre-Medicare
Local
Government
State
Pre-Medicare
During the year ended December 31, 2009, participants could choose between HealthChoice
and four federally qualified health maintenance organizations (HMO) during their initial enrollment.
Each HMO requires participants to reside or work within a designated service area, which consists
primarily of the Oklahoma City and Tulsa metro areas, but is expanding to rural parts of Oklahoma
as provider networks are established. HealthChoice has no such restriction and is thus available
to all eligible participants statewide. After enrollment, members have the opportunity to change
health carriers during an annual option period. Coverage elections may be changed during the year
if the member experiences a change in family status event as defined by Internal Revenue Service
Code Section 125.
The following chart illustrates total primary participation in coverage offered by HealthChoice
and HMOs by type of entity as of December 31, 2009.
Among the active primary members, approximately 24% were covered by the HMO plans
at December 31, 2009. For the Medicare and pre-Medicare population, approximately 9% were
covered by the HMO plans at December 31, 2009.
Each year during the months of October and November, participants may change their
coverage elections for the next year. All carrier changes and coverage elected during this period
will be effective January 1 and remain in effect until December 31 of the same year.
OSEEGIB, by statute, provides insurance coverage to all employees and dependents that
meet eligibility requirements. An employee’s coverage begins the first day of the month following
the month of employment. The employee has thirty days after beginning employment to acquire
Oklahoma State and Education Employees Group Insurance Board
3
Available Coverage by Participant Group
State
Employees
Education
Employees
Local
Government
Employees
OK Public
Employees
Retirement
System
Teachers’
Retirement
System
Survivors COBRA
Health 4 4 4 4 4 4 4
Dental 4 4 4 4 4 4 4
Life 4 4 4 4 4 4
Disability 4 4
Medicare
Supplement 4 4 4 4
health, dental, and/or life insurance for his dependents. If the employee elects dependent coverage,
the employee must cover all eligible dependents, unless the dependent is covered by other group
insurance. The employee also has thirty days after acquiring a new dependent in which to add that
dependent. After this period, an employee may still add dependents during the aforementioned
annual option period. Coverage could be delayed, however, if the dependent has been dropped in
the past twelve (12) months.
An active employee who leaves employment may retain certain insurance coverage depending
on his status at the end of his employment. The former employee may also continue dependent
coverage that was in effect while he was an active employee. Retired employees may continue
all health, dental, and life coverage. If the member has vested his retirement benefit but is not yet
eligible to draw retirement benefits, he also retains the right to health, dental and life coverage. In
the event an employee terminates employment or a dependent loses eligibility due to divorce or by
exceeding age limitations, health and dental coverage may be continued if the member and/or his
dependent meet the requirements set forth under COBRA.
The following table illustrates the available coverage by participant group:
ECONOMIC OUTLOOK
During 2009 the economy of the nation as well as the state of Oklahoma was suffering.
Governor Brad Henry, during his State of the State Address on February 1, 2010 said, “The economic
storm that has seized our nation has also battered Oklahoma. We face a budget shortfall of more
than 1 billion dollars. State programs and agencies have already experienced substantial cuts.
The state’s lagging revenues reflect the fact that far too many Oklahomans and their families are
struggling with lost jobs and lost wages.” He went on to say “Certainly, more cuts are unavoidable.
Agencies and programs, already hit hard by fiscal reality, will be asked to absorb further reductions.
There will be an impact, and it will be painful.”
The economic issues facing the state, its agencies and school districts, other
participating groups, and their employees are a key consideration when OSEEGIB sets premium
rates. The Board is very aware that increases in premiums affect the already tight budgets of
participating groups, as well as individual members. Alternatives to rate increases such as changes
Oklahoma State and Education Employees Group Insurance Board
4
in co-payments or deductibles must be considered, especially when groups are facing budget cuts.
OSEEGIB’s Board is faced with the daunting task of weighing the alternatives and making the
difficult and sometimes unpopular decisions that are necessary to meet projected costs. OSEEGIB’s
goal is to keep premiums as low as possible and continue to provide quality and affordable healthcare
to employees and retirees of state, education, and local government entities.
Healthcare reform
The economy of healthcare is in a state of change, now more than ever in recent history.
The Patient Protection and Affordable Care Act (PPACA) signed by President Obama on March 23,
2010 will have a significant economic effect on health insurers. PPACA contains wide-sweeping
changes for individuals, employers, and insurers, some of which are expensive and will result in
increases to health insurance premiums. OSEEGIB is closely monitoring all issues related to the
PPACA. PPACA is discussed further in the Legislative section of this letter.
Healthcare trends
The insurance industry monitors healthcare costs by establishing a percentage of cost
increases known as ‘trend’. The definition and factors affecting trend are discussed in Management’s
Discussion and Analysis.
Nationwide, while healthcare costs continue to increase, the rate at which they are increasing
has slowed over the past few years. However, healthcare trends remain well over the rate of inflation.
For the second consecutive year, prescription drug trends are projected to be lower than medical
plan trends. According to the 2009 Segal Survey, projected trends for PPO plans for 2010 are as
follows:
• Medical (Actives & Retirees < Age 65) 10.5%
• Medical (Retirees Age 65+) 9.5%
• Prescription Drug 9.1%
• Dental (Indemnity Plans) 6.2%
Projected trends for 2010 for medical costs are slightly higher than those projected for 2009,
while the prescription drug and dental trends for 2010 are slightly lower than those projected for
2009.
OSEEGIB’s actuaries used the following trends for setting rates for 2010:
• Medical (Actives & Retirees < Age 65) 10.0%
• Medical (Retirees Age 65+) 7.0%
• Prescription Drug 9.1%
• Dental 6.0%
The actual trends experienced by OSEEGIB for 2009 are discussed in Management’s
Discussion and Analysis.
Oklahoma State and Education Employees Group Insurance Board
5
According to the Segal Survey, price inflation for services and supplies continues to be the
biggest element of overall medical plan trend. In 2010, trends in utilization rates are expected to
increase compared to 2009 for both hospital and physician services.
Investment outlook
With the global economic downturn in 2008, OSEEGIB’s investment portfolio experienced
losses that continued throughout the first quarter of 2009. By April 2010, OSEEGIB had recovered
72% of what was lost during the downturn. However, market volatility remains and the market
value of investments continues to fluctuate widely from month to month.
More information on how economic conditions affected OSEEGIB in 2009 as well as
OSEEGIB’s 2009 trend experience is included in Management’s Discussion and Analysis.
MAJOR INITIATIVES
The Centers for Medicare and Medicaid Services (CMS) approved HealthChoice as a
Medicare Part D Prescription Drug Plan pursuant to the Medicare Prescription Drug Benefit,
Improvement and Modernization Act, effective January 1, 2006. As a result of the subsidy amount
paid by CMS totaling approximately $25 million annually, HealthChoice was able to reduce
premiums for Medicare-eligible individuals by over $50 per month from 2006 through 2009 and
the savings is expected to continue in future years.
OSEEGIB began offering a High Deductible Health Plan on January 1, 2008. OSEEGIB
requires the participant to have a Health Savings Account (HSA) before enrolling in the high
deductible plan. The high deductible plan has a $1,500 deductible for an individual and a $3,000
deductible per family.
For several years the cost of outpatient care has risen at a significantly faster rate than
inpatient care. To provide better control over the costs of outpatient care, OSEEGIB recontracted
with nearly 500 network facilities, changing the reimbursement methodology for outpatient facilities.
The types of facilities involved were hospitals, dialysis facilities, rehabilitation centers, sleep study
centers and skilled nurse facilities. The new contracts went into effect April 1, 2008.
OSEEGIB began enhancing benefits to encourage tobacco cessation in 2008 by allowing
active and retired members and enrolled dependents to obtain all FDA-approved tobacco cessation
drugs without prior authorization. OSEEGIB has taken this initiative much further in 2010, by
reducing copays on tobacco cessation prescription drugs to $5.00. Effective January 1, 2011, this
same copayment benefit will be extended to Medicare members. In addition, OSEEGIB entered
into an agreement with the Tobacco Settlement Endowment Trust (TSET) to provide, at no cost to
the member, counseling and up to two 12-week courses of over-the-counter nicotine replacement
treatment (gum, patch, lozenge) to HealthChoice members who want to quit smoking.
OSEEGIB intends to contract with a vendor to administer a Health Risk Assessment (HRA)
for the benefit of HealthChoice members. The program will empower, educate and motivate members
Oklahoma State and Education Employees Group Insurance Board
6
to take action and improve their health and safety. In addition, the HRA vendor will provide data
that OSEEGIB can use to assess various risks of the group as a whole and act to reduce the risk.
OSEEGIB is further evaluating coordinating a disease management program with the HRA.
As a sponsor of an early retiree program (HealthChoice), OSEEGIB submitted on June 29,
2010 its application to participate in the Early Retiree Reinsurance Program of PPACA recently
passed by Congress. PPACA mandates the application include a description for the cost-savings
programs and procedures currently in place for chronic and high cost claimants, a projection of the
reinsurance amount, and a description of the intended uses of the funds. The U.S. Department of
Health and Human Services (HHS) must approve the application before a plan can participate in
the program. If the application is approved, then 80% of the amount of an early retiree’s medical
and pharmacy claims between $15,000 and $90,000 in an eligible plan year may be reimbursed to
OSEEGIB. OSEEGIB projects a reinsurance amount of $36 million for two years and believes the
$5 billion allocated for this program will suffice for at least two years, if not longer. If approved,
it is OSEEGIB’s intent to use the proceeds to reduce premiums.
OSEEGIB’s actuaries are providing data analytics to better enable OSEEGIB to evaluate
utilization and costs at a detail level that has not been readily available in the past. The data
compares utilization and costs from year to year and to national norms. OSEEGIB will be using
this data to evaluate fee schedules and trends and to promote wellness for members. Members will
receive reminders for certain screenings when a member’s demographics and utilization suggest
the reminder is appropriate. OSEEGIB’s third party claims administrator will also be providing
additional data in 2011 based on claims data that will further enhance identification of trends in
healthcare on the member and provider levels.
OSEEGIB is doing its part to encourage the preservation of the environment by eliminating
paper wherever possible. Beginning June 2010, HealthChoice members can access their Explanation
of Benefits (EOB) online and opt out of receiving paper EOBs. HealthChoice network providers
also have online access to their Remittance Advices. Employer groups may access their bill online
and may opt out of receiving a paper bill. Numerous reports are now being provided electronically.
In addition, OSEEGIB’s third party administrators will be providing electronic information to the
state’s flexible spending plan that will reduce the paper documentation required for filing a flexible
spending account claim.
LEGISLATION
The following are recently passed laws that have an effect on OSEEGIB:
Federal
The American Recovery and Reinvestment Act (ARRA) was a wide-sweeping act with
limited but significant effect on OSEEGIB. The Act was signed and effective February 17, 2009.
The Act provided for a federal subsidy towards the COBRA premium for any individual who was
involuntarily terminated from employment. This Act required employers to facilitate this subsidy by
ensuring that the member was only billed 35% of the monthly premium. Employers were required
Oklahoma State and Education Employees Group Insurance Board
7
to pay the other 65% and obtain reimbursement through a credit on the employer’s payroll tax
return. Since OSEEGIB directly bills members electing the COBRA benefit, this Act required a
great amount of communication and coordination between OSEEGIB and participating groups.
As discussed in the Economic Outlook section of this letter, the Patient Protection and
Affordable Care Act (PPACA) contains wide-sweeping healthcare reform that affects OSEEGIB,
its participating groups, members, and healthcare providers.
OSEEGIB has responded to the PPACA by designating a primary committee and several
subcommittees who are very involved in evaluating the Act and ensuring that OSEEGIB will be
in compliance with every requirement. Fortunately, OSEEGIB already complies with many of the
mandates. PPACA contains language exempting existing insurance plans from some of the mandates
as long as they maintain ‘grandfathered’ status. OSEEGIB anticipates maintaining grandfathered
status for 2011 but may not keep that status in later years. Changes that will affect OSEEGIB are
as follows:
• Plans are required to provide dependent coverage until an adult child (married or unmarried)
turns 26. OSEEGIB currently covers dependent children up to age 25, but beginning January
1, 2011 will cover dependent children up to age 26.
• Plans are prohibited from applying annual and lifetime dollar limits. OSEEGIB currently
does not have either type of limit for medical claims; however, the $2 million cap on
pharmacy claims will be removed.
• PPACA requires plans to provide a host of preventive services to members at no cost to the
member. This requirement is estimated to cost $26 million annually. This will not apply
to OSEEGIB until grandfathered status is lost.
• Plans are required to provide members with a summary of benefits and coverage explanation
that meets standards developed by HHS which have not yet been completely developed.
• Plans are required to report loss ratios and make these reports available to HHS. Plans not
meeting certain loss ratios must provide premium rebates to their members.
• PPACA allocates $5 billion to be used nationwide to subsidize the cost of coverage for
retirees who are not yet Medicare eligible. OSEEGIB applied for the subsidy on June 29,
2010, the first day plans were allowed to send the application. The funds are available on
a first come first serve basis in order of filing claims. HHS has not yet provided guidance
on when or how to file the claims. More information regarding this topic can be found in
the Major Initiatives section.
• PPACA states employers must disclose the aggregate cost of benefits provided by employers
for each employee’s health insurance coverage on the employee’s annual Form W-2 which
will require increased communication between OSEEGIB and participating groups.
Oklahoma State and Education Employees Group Insurance Board
8
Oklahoma
Senate Bill 0565 (2008) removed the requirement that a dependent between age 19 and age
25 be a full-time student.
Senate Bill 1168 (2008) provides that health benefit plans, including OSEEGIB, shall not
exclude otherwise allowable claims which occur in conjunction with the arrest or pretrial detention
of the policyholder.
Senate Bill 1766 (2008) allows directors of a conservation district to participate in the health
and dental plans offered by OSEEGIB.
House Bill 1055 (2009) formally creates the State Employee Health Insurance Review
Working Group.
House Bill 1170 (2009) creates the Oklahoma Information Services Act and creates a
position of Chief Information Officer for the State who shall issue a plan to transfer, coordinate and
modernize all information technology and communications systems for all state agencies.
Senate Bill 757 (2009) creates the Health Infrastructure Advisory Board that will look at the
use of electronic medical information records and health information technologies. The OSEEGIB
Chief Information Officer will serve on that Board.
Senate Bill 822 (2009) creates a legislative task force to review the state’s current health
insurance mandates and determine if any of them should be recommended for further legislative
changes.
House Bill 2363 (2010) creates a statewide voluntary buyout program for retirement-eligible
state workers. The bill requires agencies that receive reimbursements for voluntary buyouts to agree
that its number of full-time-equivalent employees shall be reduced by that number of positions for
a period of not less than 36 months.
House Bill 2437 (2010) requires all health carriers to pay an access payment of 1 percent
on all claims paid beginning from the effective date of the act until January 1, 2015. It requires
monthly payments to the Oklahoma Insurance Department on all claims paid and incurred beginning
July 1, 2010.
House Bill 2698 (2010) creates the Oklahoma Government Website Information Act,
requiring public bodies on or before January 1, 2011, to make available on Internet web sites or on
a general web site any administrative rules adopted by the public body, proposed administrative
rules, statutes affecting the body and its operations, and any statutes the public may find useful in
interacting with the body.
FINANCIAL INFORMATION
OSEEGIB’s management is responsible for establishing and maintaining an internal control
Oklahoma State and Education Employees Group Insurance Board
9
structure designed to ensure that assets are protected and to provide accurate accounting data. The
internal control structure is designed to provide reasonable, but not absolute, assurance that these
objectives are met. The concept of reasonable assurance recognizes that the cost of a control should
not exceed the benefits likely to be derived. The valuation of costs and benefits requires estimates
and judgments by management.
Change in Financial Statement Presentation. During 2006 and 2007, OSEEGIB applied the
provisions of GASB Statement No. 43 (GASB 43), Financial Reporting for Postemployment Benefit
Plans Other Than Pension Plans, and presented the portion of its activity related to covered active
employees of participating employers as a public entity risk pool and the portion of its activity related
to covered retirees of participating employers as an agency fund in accordance with the guidance for
multiple-employer OPEB (other post-employment benefits) plans that are not administered as trusts.
During 2008, OSEEGIB determined its activity related to covered retirees of participating employers
does not meet the definition of an OPEB plan, and therefore is not subject to GASB 43. Additionally,
as OSEEGIB is not a cooperative group of governmental entities joining together to finance exposure
to risk, OSEEGIB is not subject to GASB Statement No. 10, Accounting and Reporting for Risk
Financing and Related Insurance Issues. OSEEGIB, as an instrumentality of the State of Oklahoma
created to administer, manage, and provide group health, dental, life and disability insurance for active
employees and retirees of state agencies, school districts and other governmental units, believes the
preferred method of accounting and reporting presentation is a special-purpose government engaged
solely in business-type activities, more specifically an insurance enterprise. Effective January 1,
2008, OSEEGIB changed its financial statement accounting and reporting presentation and reported
results in a single enterprise fund presentation and no longer included an agency fund.
Single Audit. OSEEGIB does not receive federal funding and, therefore, is not required to
undergo an annual single audit in conformity with the provisions of the Single Audit Amendments of
1996 and U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments,
and Non-Profit Organizations.
Budgeting Controls. All administrative expenses are funded from premiums. Funds needed
for administrative expenses are transferred to a Revolving Fund, which is not subject to fiscal year
limitations and is under the control of OSEEGIB. OSEEGIB maintains budgetary controls to ensure
compliance with provisions embodied in the annual budget approved by the Board of Directors.
The level of budgetary control (that is, the level at which expenditures cannot exceed the budgeted
amount) is established by function and activity. OSEEGIB maintains an encumbrance accounting
system as its primary technique for accomplishing budgetary control.
As demonstrated by the financial statements included in this report, OSEEGIB is meeting its
responsibility for sound financial management.
Proprietary Operations. OSEEGIB’s revenue from operations consists of health, dental, life,
and disability premiums remitted by each participating entity for their employees, or directly by retirees
or participants under COBRA. Also included in premium revenue are premium subsidies received
from the Centers for Medicare and Medicaid (CMS) Medicare Part D program. Other operating
revenues consist of pharmacy rebates and a risk adjustment fee collected from HMOs. Operational
expenses are primarily paid and incurred claims. The following charts illustrate enrollment, premiums
and claims broken down between active participants, pre-Medicare retirees, and Medicare retirees.
Enrollment (Covered Lives) vs. Incurred Claims
Health Program - Year Ended December 31, 2009
Exhibit 2
Enrollment Incurred Claims
Active Pre-Medicare Medicare
35,183
10,958
135,888
$84,913,764
$134,851,348
$515,264,885
Active employees comprise 75% of OSEEGIB’s primary member population and 70% of 2009
paid claims. Pre-Medicare retirees make up only 6% of OSEEGIB’s primary member population
but account for 12% of paid claims and retirees over age 65 make up 19% of OSEEGIB’s primary
member population and 18% of paid claims.
Oklahoma State and Education Employees Group Insurance Board
10
$600,000,000
$100,000,000
$200,000,000
$300,000,000
$400,000,000
$500,000,000
$0
Active Pre-Medicare Medicare
583,025,749
515,264,885
506,593,185
83,511,564
54,920,205
84,913,764
134,851,348
134,500,248
140,025,545
Premiums
Paid Claims
Incurred Claims
Comparison of Premiums and Incurred Claims
Health Program - Year Ended December 31, 2009
$700,000,000
Pharmacy claims are included in total health claims. For active employees, health premiums
for 2009 were $67.8 million over incurred claims for the year, a difference of 13%. For pre-Medicare
members health premiums fall short of covering incurred claims by $30.0 million or 35%, primarily
because premiums for active employees and pre-Medicare retirees are priced at a fully blended rate.
For Medicare retirees, health premiums were $5.2 million over incurred claims for a difference of
4%.
Oklahoma State and Education Employees Group Insurance Board
11
Exhibit 3
The following exhibit illustrates medical and prescription drug claims for each participant
category.
Oklahoma State and Education Employees Group Insurance Board
12
Medical and Prescription Drug Paid Claims
Year Ended December 31, 2009
Medical Claims
21%
79%
25%
75%
35%
65%
Exhibit 4
Active Pre-Medicare Medicare
Prescription Drug Claims
For the active and pre-Medicare population less than one fourth of total paid claims are for
prescription drugs. For the Medicare population the majority of paid claims are for prescription
drugs.
Administrative expenses make up approximately 4% of OSEEGIB’s total expenses and 4%
of premium revenue. This compares favorably with industry averages.
Cash and Investment Management. OSEEGIB maintains minimum cash balances as required
by statute to fund released warrants. All excess cash is deposited with a custodial bank, which in
turn credits OSEEGIB’s short-term cash money market account. In addition to the money market
account, OSEEGIB has two fixed income money managers and three equity securities managers.
All invested funds are regulated by OSEEGIB’s investment policy, set by the Board of
Directors, and monitored by OSEEGIB administration. The policy speaks specifically to liquidity,
asset quality, maturity and duration of fixed income terms, and specific asset mix by statutory fund.
In addition, the policy sets benchmark expectations for each type of money manager. A more detailed
summary of OSEEGIB’s financial position and result of operations is included in Management’s
Discussion and Analysis.
OTHER INFORMATION
Independent Audit. The accounting firm of KPMG LLP has been retained to perform an
annual audit. The independent auditors’ report on the basic financial statements is included in the
financial section of this report.
Retirement of Administrator. Mr. Bill Crain, Administrator of OSEEGIB for 8 years, retired
January 1, 2010. Mr. Frank Wilson was appointed new Administrator. A list of principal officials
at January 1, 2010, is included as well as a list of principal officials at December 31, 2009.
Acknowledgments. The preparation of the comprehensive annual financial report was made
possible by the dedicated service of the entire staff of the accounting/finance department. In addition,
we wish to acknowledge the contribution made by Mr. Gary Beebe, Financial Accounting.
In closing, without the leadership and support of the governing body of OSEEGIB,
preparation of this report would not have been possible.
Respectfully submitted,
Lynne Bajema Diana O’Neal
Deputy Administrator, Finance Director of Finance
Oklahoma State and Education Employees Group Insurance Board
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Oklahoma State and Education Employees Group Insurance Board
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Executive Organizational Chart
Legislature
State of Oklahoma
Oklahoma State and Education
Employees Group Insurance Board
Board Auditor Board Legal Counsel
Agency Administrator
General Counsel
to the
Administrator
Regulatory
Affairs
Deputy
Administrator
Finance -
Administration
Human
Resources
Deputy
Administrator
Operations
Information
Technology
Finance and
Accounting
Member
Services
Health Care
Management
Policy
Research
Public
Information
Provider
Relations
Oklahoma State and Education Employees Group Insurance Board
15
BOARD
Administrator
Bill Crain
Deputy Administrators
Finance Frank Wilson
Operations Paul King
Division Directors
General Counsel, Board Paul Duncan
Internal Audit Joe McCoy
General Counsel, Administrator Kathy Pendarvis
Finance and Accounting Lynne Bajema
Government Liaison Dana Webb
Human Resources Gene Krier
Information Technology Bo Reese
Health Care Management Yasmine Barve
Provider Relations Teresa South
Member Services Victoria Goodwin
Public Information Teresa Robinson
Richard N. Womack, Chairman Eugene P. Reding, Vice Chairman
Kim Holland Cody Graves
Michael Clingman Steven Mattachione
W. R. Moon V. David Miller
List of Principal Officials
December 31, 2009
BOARD
Oklahoma State and Education Employees Group Insurance Board
16
Richard N. Womack, Chairman Eugene P. Reding, Vice Chairman
Kim Holland Cody Graves
Michael Clingman Steven Mattachione
W. R. Moon V. David Miller
Administrator
Frank Wilson
Deputy Administrators
Finance Lynne Bajema
Operations Paul King
Division Directors
General Counsel, Board Paul Duncan
Internal Audit Joe McCoy
General Counsel, Administrator Kathy Pendarvis
Finance and Accounting Diana O’Neal
Government Liaison Dana Webb
Human Resources Gene Krier
Information Technology Bo Reese
Health Care Management Yasmine Barve
Provider Relations Teresa South
Member Services Victoria Goodwin
Public Information Teresa Robinson
List of Principal Officials
January 1, 2010
Section
Financial
KPMG LLP
210 Park Avenue, Suite 2850
Oklahoma City, OK 73102-5683
KPMG LLP, a U.S. limited liability partnership, is the U.S.
member firm of KPMG International, a Swiss cooperative.
Independent Auditors’ Report
Members of the Board
Oklahoma State and Education Employees
Group Insurance Board
Oklahoma City, Oklahoma:
We have audited the accompanying balance sheets of the Oklahoma State and Education Employees Group
Insurance Board (OSEEGIB), a component unit of the State of Oklahoma, as of December 31, 2009 and
2008, and the related statements of revenues, expenses and changes in fund equity, and cash flows for the
years then ended. These financial statements are the responsibility of OSEEGIB’s management. Our
responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of
America and the standards applicable to financial audits contained in Government Auditing Standards,
issued by the Comptroller General of the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of OSEEGIB’s internal control over financial reporting. Accordingly, we
express no such opinion. An audit also includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
financial position of the Oklahoma State and Education Employees Group Insurance Board as of
December 31, 2009 and 2008, and the changes in its financial position and its cash flows for the years then
ended in conformity with U.S. generally accepted accounting principles.
As discussed in note 2(n) to the financial statements, OSEEGIB changed its method of financial statement
presentation during 2008.
In accordance with Government Auditing Standards, we have also issued our report dated April 29, 2010,
on our consideration of OSEEGIB’s internal control over financial reporting and our tests of its compliance
with certain provisions of laws, regulations, contracts, and other matters. The purpose of that report is to
describe the scope of our testing of internal control over financial reporting and compliance and the results
of that testing, and not to provide an opinion on the internal control over financial reporting or on
compliance. That report is an integral part of an audit performed in accordance with Government Auditing
Standards and should be considered in assessing the results of our audits.
The accompanying management’s discussion and analysis on pages 19 through 26 is not a required part
of the basic financial statements, but is supplementary information required by U.S. generally accepted
accounting principles. We have applied certain limited procedures, which consisted principally of inquiries
of management regarding the methods of measurement and presentation of the required supplementary
information. However, we did not audit the information and express no opinion on it.
April 29, 2010
18
19
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Management’s Discussion and Analysis
December 31, 2009 and 2008
(Continued)
Overview of the Financial Statements
The Oklahoma State and Education Employees’ Group Insurance Board’s (OSEEGIB) basic financial statements
are prepared on the basis of accounting principles generally accepted in the United States of America for
governmental entities and insurance enterprises where applicable. The primary purpose of OSEEGIB is to
provide group health, dental, life, and disability insurance for employees of state agencies, school districts, and
other governmental units as set forth in Title 74 of the Oklahoma Statutes. OSEEGIB is a component unit of the
State of Oklahoma.
During 2006 and 2007, OSEEGIB applied the provisions of GASB Statement No. 43 (GASB 43), Financial
Reporting for Postemployment Benefit Plans Other Than Pension Plans, and presented the portion of its activity
related to covered active employees of participating employers as a public entity risk pool and the portion of its
activity related to covered retirees of participating employers as an agency fund in accordance with the guidance
for multiple-employer OPEB (other post-employment benefits) plans that are not administered as trusts. During
2008, OSEEGIB determined its activity related to covered retirees of participating employers does not meet the
definition of an OPEB plan and, therefore, is not subject to GASB 43. Additionally, as OSEEGIB is not a
cooperative group of governmental entities joining together to finance exposure to risk, OSEEGIB determined it
is not subject to the guidance for public entity risk pools in GASB Statement No. 10, Accounting and Financial
Reporting for Risk Financing and Related Insurance Issues. OSEEGIB, as an instrumentality of the State of
Oklahoma created to administer, manage, and provide group health, dental, life, and disability insurance for
active employees and retirees of state agencies, school districts, and other governmental units, believes the
preferred method of accounting and reporting presentation is a special-purpose government engaged solely in
business-type activities, more specifically an insurance enterprise. Effective January 1, 2008, OSEEGIB changed
its financial statement accounting and reporting presentation and reported results in a single enterprise fund
presentation and no longer included an agency fund. Additionally, as a result of the change in accounting and
reporting presentation, disability reserves of approximately $13,504,000 were required to be recognized and
policy maintenance costs of approximately $2,897,000 were required to be included in the premium deficiency
reserve decreasing beginning fund equity for 2008.
The total effect of the change in accounting and reporting presentation on fund equity on January 1, 2008 is as
follows:
As originally Effect of
reported As adjusted change
Fund equity, January 1, 2008 $ 187,891,608 171,490,197 16,401,411
The 2007 financial statements included in the financial highlights section below have been adjusted to reflect the
change in accounting and reporting presentation for comparability purposes.
20
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Management’s Discussion and Analysis
December 31, 2009 and 2008
(Continued)
The three financial statements presented within the basic financial statements are as follows:
Balance Sheets – This statement presents information reflecting OSEEGIB’s assets, liabilities, and fund equity.
Fund equity represents the amount of total assets less total liabilities. The balance sheet is classified as to current
and noncurrent assets and liabilities. For purposes of the financial statements, current assets and liabilities are
those assets and liabilities with immediate liquidity or which are collectible or becoming due within twelve
months of the statement date. OSEEGIB’s investment balances are considered current assets, as OSEEGIB has
historically experienced a high portfolio turnover rate.
Statements of Revenues, Expenses, and Changes in Fund Equity – This statement reflects OSEEGIB’s
operating revenues and expenses, as well as nonoperating revenues during the year. The major source of
operating revenue is premium income and the major sources of operating expenses are health, dental, life, and
disability benefits. The change in fund equity for an enterprise fund is similar to net profit or loss for a private
sector insurance company.
Statements of Cash Flows – The statements of cash flows are presented on the direct method of reporting which
reflects cash flows from operating, capital and related financing, and investing activities. Cash collections and
payments are reflected in this statement to arrive at the net increase or decrease in cash for the fiscal year.
21
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Management’s Discussion and Analysis
December 31, 2009 and 2008
(Continued)
Financial Highlights
The management of the Oklahoma State and Education Employees’ Group Insurance Board (OSEEGIB) offers
readers of OSEEGIB’s financial statements this narrative overview and analysis of the financial activities of the
entity for the years ended December 31, 2009, 2008, and 2007.
December 31 2009 v. 2008 Change
2009 2008 2007 Amount Percentage
Cash and investments $ 259,205,958 217,007,595 288,440,918 42,198,363 19.4%
Premiums receivable, net 30,454,967 24,966,549 27,033,170 5,488,418 22.0
Other current assets 13,809,260 8,091,122 13,816,166 5,718,138 70.7
Total current assets 303,470,185 250,065,266 329,290,254 53,404,919 21.4
Office equipment, net 609,442 710,218 856,296 (100,776) (14.2)
Total assets $ 304,079,627 250,775,484 330,146,550 53,304,143 21.3%
Policy and contract claim reserves $ 107,617,000 98,479,000 88,584,000 9,138,000 9.3%
Disability reserves (current only) 2,846,000 2,747,000 2,663,032 99,000 3.6
Premium deficiency reserves — 11,915,000 24,627,000 (11,915,000) (100.0)
Other current liabilities 22,608,838 16,638,908 31,940,942 5,969,930 35.9
Total current liabilities 133,071,838 129,779,908 147,814,974 3,291,930 2.5
Total noncurrent liabilities 10,963,000 10,552,000 10,841,379 411,000 3.9
Total liabilities 144,034,838 140,331,908 158,656,353 3,702,930 2.6
Invested in capital assets 609,442 710,218 856,296 (100,776) (14.2)
Unrestricted fund equity 159,435,347 109,733,358 170,633,901 49,701,989 45.3
Total fund equity 160,044,789 110,443,576 171,490,197 49,601,213 44.9
Total liabilities
and fund equity $ 304,079,627 250,775,484 330,146,550 53,304,143 21.3%
22
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Management’s Discussion and Analysis
December 31, 2009 and 2008
(Continued)
Year ended December 31, 2009 v. 2008 Change
2009 2008 2007 Amount Percentage
Premium revenue $ 861,781,691 761,944,652 798,961,929 99,837,039 13.1%
Other operating revenues 14,729,837 14,382,892 15,136,247 346,945 2.4
Total operating revenues 876,511,528 776,327,544 814,098,176 100,183,984 12.9
Benefits expense 810,727,132 779,338,684 749,970,728 31,388,448 4.0
Change in claim reserves 9,648,000 9,689,589 3,166,412 (41,589) (0.4)
Change in premium deficiency reserves (11,915,000) (12,712,000) 24,627,000 797,000 (6.3)
Administrative and claims processing
expense 38,423,432 38,717,310 41,222,380 (293,878) (0.8)
Total operating expenses 846,883,564 815,033,583 818,986,520 31,849,981 3.9
Operating income (loss) 29,627,964 (38,706,039) (4,888,344) 68,334,003 (176.5)
Net investment income (loss) 19,973,249 (22,340,582) 13,590,378 42,313,831 (189.4)
Change in fund equity 49,601,213 (61,046,621) 8,702,034 110,647,834 (181.3)
Fund equity, beginning of year,
as adjusted 110,443,576 171,490,197 162,788,163 (61,046,621) (35.6)
Fund equity, end of year $ 160,044,789 110,443,576 171,490,197 49,601,213 44.9%
OSEEGIB’s total assets for the year ended December 31, 2009 increased by approximately 21% from the
previous year after a decrease of 24% during 2008. Cash and investments increased by $42.2 million or 19%
during 2009 due to favorable claims experience and a rebounding investment market after decreasing by
$71.4 million or 25% during 2008’s year of high claims experience combined with a drastic downturn in the
investment market.
During 2009, OSEEGIB earned approximately $6.2 million in interest and dividend income. OSEEGIB realized
investment losses of $2.9 million and experienced $17.1 million in unrealized gains. Investment expenses were
approximately $438,000, resulting in a total net gain on investments of $20.0 million. In 2008, OSEEGIB earned
approximately $8.2 million in interest and dividend income, experienced $156,000 in realized losses and
$29.8 million in unrealized losses, and paid $581,000 in investment expenses for a net investment loss of
$22.3 million. OSEEGIB’s investment allocation at December 31, 2009 is comprised of approximately 53%
fixed income securities, 24% equities, and 23% cash equivalents compared to approximately 59% fixed income
securities, 23% equities, and 18% cash equivalents at December 31, 2008. During 2009, OSEEGIB did not
convert any investments to operating cash. During 2008, OSEEGIB liquidated $36 million of fixed income
securities and $9 million of equity investments to replenish operating cash.
23
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Management’s Discussion and Analysis
December 31, 2009 and 2008
(Continued)
Premiums receivable at December 31, 2009 increased by $5.5 million over December 31, 2008, primarily due to
an increase in the monthly premium for 2009. At December 31, 2008, premiums receivable had decreased by
$2.1 million due to a decrease in the number of active members. The decrease was due primarily to the
disenrollment of a major university. The increase in other current assets in 2009 of $5.7 million is primarily due
to a $3.2 million increase in the receivable for pharmacy rebates as well as an almost $2.0 million increase in a
receivable for pending investment sales. In contrast, the decrease in other current assets in 2008 of $5.7 million is
primarily due to a $6.8 million decrease in the receivable for unsettled investment trades.
Total liabilities as of December 31, 2009 increased $3.7 million from December 31, 2008. Four months after the
end of the year, OSEEGIB’s actuaries project the results of the current fiscal year based upon updated trend
information as compared to the assumptions used when the rates were set in August of the previous year. If, at
that time, it appears that claims experience will exceed premiums received, accounting principles require a
premium deficiency reserve liability to be booked on the previous year’s final Balance Sheet and the reserve is
amortized as a contra-expense in the current year. There is no premium deficiency reserve liability at
December 31, 2009. At December 31, 2008, the premium deficiency reserve liability was $11.9 million.
Total claim reserves, including noncurrent disability reserves, at December 31, 2009, were $9.6 million more
than reserves at December 31, 2008 due to an overall increase in incurred claims in 2009. At December 31, 2008,
total claim reserves including noncurrent disability reserves were $9.7 million more than reserves at
December 31, 2007. OSEEGIB contracted with a new Third Party Administrator (TPA) to pay health, dental, and
life claims effective January 1, 2009. The TPA under contract for 2008 stopped paying claims on December 19,
2008, reducing paid claims for December and increasing claim reserves at December 31, 2008.
Other current liabilities increased $6 million from December 31, 2008 due in part to a $1.1 million increase in the
payable to a TPA as well as a $2 million increase in the payable for unsettled investment purchases. Other
current liabilities at December 31, 2008 decreased $15.3 million from December 31, 2007 primarily due to a
$10.4 million decrease in payables for unsettled investment purchases, as well as a $2.7 million decrease in a
non-recurring settlement liability.
OSEEGIB saw an increase in net premium revenue for 2009 of approximately $99.8 million, primarily due to the
rate increases necessary for 2009. In addition, payments from the Centers for Medicare and Medicaid Services
(CMS), which is included in premium revenue, increased by $1.4 million in 2009. In contrast, for 2008
OSEEGIB saw a decrease in premium revenue of approximately $37.0 million, primarily due to the reduction in
participation as well as a decrease in the dependent rates in the active and pre-Medicare categories. Payments
from CMS during 2008 decreased by $2.9 million from 2007 due to a change in CMS’ payment method. For the
year ended December 31, 2009, OSEEGIB earned approximately $14.7 million in other operating income, which
consisted of $1.7 million in risk adjustment fee income and $13 million in pharmacy rebates. For the year ended
December 31, 2008, OSEEGIB earned approximately $14.4 million in other operating income, which consisted
of $2.1 million in risk adjustment fee income and $12.1 million in pharmacy rebates.
24
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Management’s Discussion and Analysis
December 31, 2009 and 2008
(Continued)
Benefits expense, including changes in claim reserves, comprised 96% of OSEEGIB’s total expenses for 2009
and 95% of total expenses in 2008. Changes in premium deficiency reserves are not considered in the
calculation. Total benefits expense for 2009, including changes in reserves, increased by $31.3 million, or 4%
over the prior year. For the year ended December 31, 2008, total benefits expense, including changes in reserves,
increased by $35.9 million, or 5% over the year ended December 31, 2007.
Health and dental claim costs increased by approximately $27.1 million, or 4%, over the prior year primarily due
to increases in incurred claims for pharmacy benefits. The actual increase varied favorably from the 9% increase
assumed by the actuaries when setting 2009 rates. For the year ended December 31, 2008, health and dental
claim costs increased by approximately $34.1 million or 5% over the year ended December 31, 2007. The
expense for life benefits increased by approximately $2.8 million or 13% during 2009. In 2008, life benefits
expense increased by approximately $5.7 million or 37% over the expense reported for 2007.
Disability benefits for 2009 increased by $1.6 million or 7% after decreasing by $3.9 million or 65% in 2008.
The sharp decrease in 2008 was primarily because disability reserves increased by $3.2 million in 2007 and have
remained relatively stable since.
Administrative expenses decreased slightly by $300,000, or 0.8%, in 2009. In 2008, administrative expenses
decreased by $2.5 million, or 6%, primarily due to a decrease in the administrative fee assessed by the Oklahoma
State Employee Benefits Council. The fee was changed from 2% for 2007 to 1.25% for 2008, resulting in a
savings to OSEEGIB of $2.0 million. Administrative expenses made up 4% of OSEEGIB’s total expenses in
2009 and 5% of total expenses in 2008.
OSEEGIB experienced an increase in fund equity of approximately $49.6 million, or 45%, for the year ended
December 31, 2009. For 2008, there was a decrease in fund equity of approximately $61.0 million, or 36%.
The Health and Dental program experienced an increase in fund equity of approximately $49.0 million, or 71%,
for the year ended December 31, 2009 due to the increase in premiums and improvement in the investment
markets. The premium rates adopted for the Health and Dental Fund were based on assumptions that provided for
no increase or decrease in fund equity. During 2008, the Health and Dental program experienced a decrease in
fund equity of approximately $52.3 million, or 43%. OSEEGIB’s governing board made a decision to subsidize
monthly health premiums for 2008 and experienced a drastic downturn in the investment market.
The Life program experienced a decrease in fund equity of approximately $2.4 million or 12% in 2009 and
$4.5 million or 18% in 2008. The premium rates adopted for the Life program were based on assumptions that
provided for no increase or decrease in fund equity.
The Disability program experienced an increase in fund equity of $3.0 million or 14% in 2009 while in 2008 the
Disability program experienced a decrease in fund equity of $4.3 million or 16%. The premium rates adopted for
the Disability program were based on assumptions that provided for no increase or decrease in fund equity.
25
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Management’s Discussion and Analysis
December 31, 2009 and 2008
Economic Conditions
The insurance industry monitors healthcare costs by establishing a percentage of cost increases known as “trend”.
According to the Segal Health Plan Cost Trend Survey, trend is the forecast change in health plans’ per-capita
claims cost determined by insurance carriers, managed care organizations, and third-party administrators. Many
factors influence trend, including:
 Price inflation,
 Deductibles and copayments,
 Cost-shifting,
 Utilization increases due to aging, product promotion and improved diagnostic services,
 The availability and use of more expensive drug therapies,
 Government mandated benefits and other legislative changes, and
 Technological changes.
For 2009, the overall nationwide health trend for employer sponsored plans, according to AON Consulting,
OSEEGIB’s actuarial firm, was 10.9% for PPO plans with pharmacy benefits. The national trend for Medicare
supplement plans was 7.6% for 2009. Historically, OSEEGIB’s cost trends have tracked below national averages.
As a large self-funded plan, OSEEGIB’s cost trends are cyclical in nature, and can vary during a given plan year.
OSEEGIB experienced an average medical trend of 8-9% during 2008 and 2009 for active members and retirees
under age 65. OSEEGIB’s trend for the Medicare supplement plan was a decrease of 1.0%. These figures
measured OSEEGIB’s paid claims and did not adjust for plan design or provider contracting changes during the
measurement period.
Since premium rates are set in August, the rate setting process applies trends experienced through April. The
medical trend applied by OSEEGIB’s actuaries for calculating 2009 rates was 9.5% for active employees and
pre-Medicare retirees and 7.0% for Medicare retirees. The prescription drug trend used for setting 2009 rates was
7.5% for active employees and pre-Medicare retirees and 7.5% for Medicare retirees. The dental trend used for
setting 2009 rates was 6.0%. The medical trend applied by OSEEGIB���s actuaries for calculating 2008 rates was
8.0% for active employees and pre-Medicare retirees and 7.0% for Medicare retirees. The prescription drug trend
used for setting 2008 rates was 7.5% for active employees, pre-Medicare retirees, and Medicare retirees. The
dental trend used for setting 2008 rates was 7.2%.
OSEEGIB’s investment portfolio rebounded in 2009 after a dismal year in 2008. The return on investment (ROI)
assumed by OSEEGIB’s actuaries in setting premium rates for 2009 was a combined return of 4.4% and the
actual rate of return was 8.5%. In contrast, OSEEGIB’s investment holdings suffered in 2008 with the global
economic downturn after experiencing five years of positive returns. Relative to the market decline overall,
OSEEGIB’s investment losses were minimized due to OSEEGIB’s conservative investment policy. The ROI
assumed by OSEEGIB’s actuaries in setting premium rates for 2008 was a combined return of 4% and the actual
ROI for 2008, after large market losses in the final quarter, was a 10% loss.
26
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Management’s Discussion and Analysis
December 31, 2009 and 2008
The Patient Protection and Affordable Care Act was signed by President Obama on March 23, 2010. This Act
includes wide-sweeping changes to many facets of the nation’s healthcare system. OSEEGIB is in the process of
evaluating the effect this massive piece of legislation has on operations and benefits.
27
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Balance Sheets
December 31, 2009 and 2008
Assets 2009 2008
Current assets:
Cash and cash equivalents $ 83,857,770 63,240,471
Investments 175,348,188 153,767,124
Receivables:
Interest and dividends receivable 383,621 388,354
Unsettled investment sales 3,833,553 887,140
Premiums, net of allowance of $800,000 and $310,000 at
December 31, 2009 and 2008, respectively 30,454,967 24,966,549
Pharmacy rebate 8,594,904 5,279,700
Other, net 997,182 1,535,928
Total current assets 303,470,185 250,065,266
Noncurrent assets:
Office equipment 4,163,900 4,438,752
Less accumulated depreciation (3,554,458) (3,728,534)
Office equipment, net 609,442 710,218
Total assets $ 304,079,627 250,775,484
Liabilities
Current liabilities:
Health and dental reserves $ 102,804,000 93,771,000
Life reserves 4,813,000 4,708,000
Disability reserves 2,846,000 2,747,000
Premium deficiency reserve — 11,915,000
Premiums due to health maintenance organizations and other insurers 9,246,824 8,705,679
Payable for investment purchases 3,878,548 836,471
Other accrued liabilities 9,483,466 7,096,758
Total current liabilities 133,071,838 129,779,908
Noncurrent liabilities:
Disability reserves 10,963,000 10,552,000
Total liabilities 144,034,838 140,331,908
Fund Equity
Invested in capital assets 609,442 710,218
Unrestricted 159,435,347 109,733,358
Total fund equity 160,044,789 110,443,576
Total liabilities and fund equity $ 304,079,627 250,775,484
See accompanying notes to basic financial statements.
28
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Statements of Revenues, Expenses and Changes in Fund Equity
Years ended December 31, 2009 and 2008
2009 2008
Operating revenues:
Premium revenue $ 861,781,691 761,944,652
Other operating revenues 14,729,837 14,382,892
Total operating revenues 876,511,528 776,327,544
Operating expenses:
Benefits expense 810,727,132 779,338,684
Change in health and dental reserves 9,033,000 8,974,000
Change in life reserves 105,000 921,000
Change in disability reserves 510,000 (205,411)
Change in premium deficiency reserve (11,915,000) (12,712,000)
Administrative and claim processing 38,423,432 38,717,310
Total operating expenses 846,883,564 815,033,583
Operating income (loss) 29,627,964 (38,706,039)
Nonoperating revenues:
Net investment income (loss) 19,973,249 (22,340,582)
Change in fund equity 49,601,213 (61,046,621)
Fund equity, beginning of year, as adjusted on January 1, 2008
(note 2(n)) 110,443,576 171,490,197
Fund equity, end of year $ 160,044,789 110,443,576
See accompanying notes to basic financial statements.
29
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Statements of Cash Flows
Years ended December 31, 2009 and 2008
2009 2008
Cash flows from operating activities:
Premiums collected $ 830,462,048 739,916,245
Premiums collected on behalf of health maintenance organizations
and other insurers 120,025,897 113,263,794
Payments collected from CMS 25,172,614 22,860,814
Risk adjustment premium collected 1,708,628 2,150,474
Pharmacy rebates collected 9,979,237 11,226,526
Benefits paid (810,727,132) (779,338,684)
Premiums paid to health maintenance organizations and other insurers (118,826,141) (113,273,374)
Payments to employees for services (10,181,591) (10,168,964)
Payments to suppliers for goods and services (25,622,234) (30,439,923)
Other operating cash received (paid) 265,515 (296,940)
Net cash provided by (used in) operating activities 22,256,841 (44,100,032)
Cash flows from capital and related financing activities:
Acquisition of office equipment (132,124) (169,559)
Net cash used in capital and related financing activities (132,124) (169,559)
Cash flows from investing activities:
Purchases of investments (194,426,040) (129,574,575)
Proceeds from sales and maturities of investments 187,166,476 167,634,080
Investment income received 5,752,146 7,810,264
Net cash (used in) provided by investing activities (1,507,418) 45,869,769
Net increase in cash and cash equivalents 20,617,299 1,600,178
Cash and cash equivalents, beginning of year 63,240,471 61,640,293
Cash and cash equivalents, end of year $ 83,857,770 63,240,471
Reconciliation of operating income (loss) to net cash provided by (used in)
operating activities:
Operating income (loss) $ 29,627,964 (38,706,039)
Adjustments to reconcile operating income (loss) to net cash provided by
(used in) operating activities:
Depreciation 232,900 315,637
Change in operating assets and liabilities:
Premium receivable (5,488,418) 2,066,621
Other receivables (2,776,458) (1,302,832)
Claim reserves 9,138,000 9,895,000
Disability reserves 510,000 (205,411)
Premium deficiency reserves (11,915,000) (12,712,000)
Premiums due to health maintenance organizations and other insurers 541,145 (288,056)
Other liabilities 2,386,708 (3,162,952)
Total adjustments (7,371,123) (5,393,993)
Net cash provided by (used in) operating activities $ 22,256,841 (44,100,032)
See accompanying notes to basic financial statements.
30
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Notes to Basic Financial Statements
December 31, 2009 and 2008
(Continued)
(1) Description of OSEEGIB
The Oklahoma State and Education Employees Group Insurance Board (OSEEGIB) is a special purpose
state and local government engaged solely in business-type activities. OSEEGIB is a legal trust which
administers, manages and provides group health, dental, life, and disability insurance for active employees
and retirees of state agencies, school districts, and other governmental units of the State of Oklahoma.
OSEEGIB is self-insured and is financed through premiums collected from employers and employees.
OSEEGIB provides insurance solely to eligible employees, dependents, and retirees. OSEEGIB is a
component unit of State of Oklahoma (the State).
The following brief description of OSEEGIB is provided for general information purposes only.
Participants should refer to Title 74 of the Oklahoma Statutes, Sections 1301 et seq. as amended, for more
complete information.
In accordance with Title 74, OSEEGIB maintains three separate programs, the Health and Dental program,
the Life program, and the Disability program. There is no statutory restriction that would prevent assets
accumulated in one program from paying benefits due from another program.
The eight-member board which administers OSEEGIB (the Board) is comprised of two members
appointed by the governor, two members appointed by the speaker of the House of Representatives, two
members appointed by the president pro tempore of the Senate, the commissioner of the Oklahoma
Insurance Department and the director of the Office of State Finance. The Board has a fiduciary
responsibility to manage the funds and invest the assets of OSEEGIB. This moral and legal obligation
establishes a trustee relationship whereby OSEEGIB’s funds are held for the ultimate benefit of those who
obtain insurance from OSEEGIB.
(a) General
In 1968, OSEEGIB was formed by the State Legislature to provide group health, dental, and life
benefits to participants of the Oklahoma Public Employees Retirement System (OPERS) and active
employees of the State. Subsequently, other groups became eligible for participation, including
persons covered under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA),
survivors and certain local government employees. COBRA allows temporary continuance of
insurance coverage under certain circumstances. Survivors are individuals who were covered eligible
dependents of a participant in OSEEGIB at the time of the participant’s death. OSEEGIB was
created by the State Legislature and could be terminated by the same body.
In 1978, OSEEGIB became self-insured. Beginning in 1985, participants were given the option of
electing health coverage from certain health maintenance organizations (HMOs). Plans similar to
HMOs provide dental coverage for those participants who elect to participate in them (DMOs). In
1986, the State added a self-insured disability program to OSEEGIB.
31
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Notes to Basic Financial Statements
December 31, 2009 and 2008
(Continued)
In 1989, participants of the Teachers’ Retirement System of Oklahoma (TRS) and active employees
of school districts became eligible to enroll in OSEEGIB (educational participants). House Bill
No. 1731, which provided TRS participants the option to enroll in OSEEGIB, required the TRS to
transfer $39,600,000 to OSEEGIB. The educational participants receive the same health and dental
coverage options provided to state and local governmental participants. Life coverage was made
available to active educational participants beginning July 1, 1991. Disability coverage is not
available to educational participants.
Effective July 1, 1993, the Oklahoma State Employee Benefit Council (EBC) began contracting with
HMOs and DMOs on behalf of state employees to provide health and dental coverage for those
participants who elect such coverage.
Effective January 1, 2006, OSEEGIB became a Medicare Part D Prescription Drug Plan pursuant to
the Medicare Prescription Drug Improvement and Modernization Act of 2003.
(b) Premiums and Participants
The health, dental, life, and disability benefits for governmental participants are funded by monthly
premiums paid by the State, local governmental units, OPERS, and individuals. The health, dental,
and life benefits for educational participants are funded by monthly premiums paid by school
districts, the TRS, and individuals. A participant may extend coverage to dependents for an
additional monthly premium based on the coverage requested. Premiums for active state employees
and their dependents are collected by EBC and remitted to OSEEGIB or other insurer elected by the
employee.
Premiums remitted to OSEEGIB on behalf of active state employees and their dependents for the
years ended December 31, 2009 and 2008 are reported gross of a fee retained by EBC, which is
equal to 1.25% of premiums. This fee, which was approximately $3,062,000 and $2,429,000 for the
years ended December 31, 2009 and 2008, respectively, is included in administrative expenses in the
statements of revenues, expenses and changes in fund equity. For the years ended December 31,
2009 and 2008, premiums for local government, education, and inactive participants who have
elected an HMO for health coverage or DMO for dental coverage are collected by OSEEGIB and
remitted to the HMO or DMO carrier net of a fee retained by OSEEGIB of 1% of premiums. This
fee, which was approximately $1,191,000 and $1,122,000 for the years ended December 31, 2009
and 2008, respectively, is included as an offset to administrative expenses in the statements of
revenues, expenses and changes in fund equity. The premium related to HMOs, DMOs, and vision
plans was approximately $119,367,000 and $112,985,000 for 2009 and 2008, respectively, and, as
OSEEGIB only acts in an agency capacity, the premiums collected on behalf of HMOs, DMOs, and
vision plans is not reflected in the statements of revenues, expenses and changes in fund equity.
Pursuant to the authority granted by Oklahoma Statute, the Board has the authority to establish and
change premium rates for the members, employers, and other contributing entities each year. An
outside consultant advises the Board regarding changes in premium rates. If premium rates are
changed, they generally become effective at the beginning of the next calendar year. Each HMO and
DMO determines its own premium rates.
32
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Notes to Basic Financial Statements
December 31, 2009 and 2008
(Continued)
OSEEGIB participants are not subject to supplemental assessment in the event of a premium
deficiency. At the time of premium payment, the risk of loss due to incurred benefit costs is
transferred from the participant to OSEEGIB. If the assets of OSEEGIB were to be exhausted,
participants would not be responsible for OSEEGIB’s liabilities.
At December 31, 2009, OSEEGIB provided health coverage to 133 state agency divisions with
approximately 24,000 primary participants (not including dependents), 616 school districts with
approximately 54,000 primary participants, 303 local government entities with approximately
9,000 primary participants, and 33 other groups, which include the governmental and educational
retirement systems, COBRA, and survivors, with approximately 39,000 primary participants.
Approximately 57,000 dependents participated in OSEEGIB as well. In addition, OSEEGIB
collected and remitted premiums for approximately 31,000 primary participants and
23,000 dependents who were covered by HMOs. These counts are provided for health coverage only.
At December 31, 2008, OSEEGIB provided health coverage to 134 state agency divisions with
approximately 24,000 primary participants (not including dependents), 614 school districts with
approximately 52,000 primary participants, 315 local government entities with approximately
9,000 primary participants, and 32 other groups, which include the governmental and educational
retirement systems, COBRA, and survivors, with approximately 39,000 primary participants.
Approximately 57,000 dependents participated in OSEEGIB as well. In addition, OSEEGIB
collected and remitted premiums for approximately 30,000 primary participants and
22,000 dependents who were covered by HMOs. These counts are provided for health coverage only.
All state agencies in Oklahoma are required to offer to their active employees the coverage selections
offered by EBC. All eligible education or local government entities may elect to participate in
OSEEGIB. Any education entity or local government entity which elects to withdraw from offering
OSEEGIB as an insurance option may do so with 30 days written notice and must withdraw both its
active and inactive participants.
(c) Benefits
A provider network arrangement is available for health and dental benefits. According to this
arrangement, network providers agree to accept amounts for covered services that do not exceed the
charges allowed by OSEEGIB. Therefore, the network provider can only expect to receive payment
from the participant for the charges allowed by the network agreement.
HealthChoice offers a high option and a basic option health benefit plan for non-Medicare
participants. A member who elects the high option plan is responsible for a $25 copayment and no
deductible for office visits and preventive care services when using network providers. The same
services when using nonnetwork providers are reimbursed at 50% after the member meets a $500
calendar year deductible. For other services, network provider and nonnetwork provider benefits are
generally reimbursed at 80% and 50%, respectively, after the appropriate deductibles of $500
($1,500 per family). OSEEGIB reimburses allowed charges at 100% once the member has reached
$2,800 and $3,300 per member out-of-pocket maximum for network providers and nonnetwork
providers, respectively.
33
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Notes to Basic Financial Statements
December 31, 2009 and 2008
(Continued)
The basic option plan pays 100% of the first $500 of allowed charges for covered medical services.
The member pays 100% of the next $500 ($1,000 per family) of allowed charges. The member and
OSEEGIB each pay 50% of the next $10,000 of allowed charges ($20,000 per family). OSEEGIB
reimburses allowed charges at 100% once the member has reached the out-of-pocket maximum of
$5,500 ($11,000 per family).
In addition, for both plans, when using non-network providers, the member is responsible for the
excess of billed charges over allowed charges.
A HealthChoice USA option is offered to active participants who work outside Oklahoma and
Arkansas for more than 90 consecutive days and to non-Medicare retired participants who live
outside those two states. These members have the same benefits as the HealthChoice high option, but
they access a nationwide provider network.
Pharmacy benefits are the same for the high option and the basic option plans. Medications are
categorized as either preferred or nonpreferred. When purchasing preferred medications from a
network provider, the member is responsible for a copayment of up to $25 for medications costing
$100 or less and up to $50 for medications costing more than $100. The maximum copay doubles for
nonpreferred medications. In addition, there is a $2,500 per person annual out-of-pocket maximum
for preferred medications. There is no out-of-pocket maximum for nonpreferred medications. For
nonnetwork providers, the member is responsible for a copay of up to $75 for preferred medications
and up to $125 for nonpreferred medications plus a dispensing fee. There is a lifetime maximum
pharmacy benefit of $2,000,000 per covered person.
Allowed expenses for dental benefits are reimbursed at a percentage ranging from 60% to 100%,
based on the class of the allowed expense, when using network providers. The same services when
using a nonnetwork provider are reimbursed at a percentage ranging from 50% to 100%. There is a
$25 deductible ($75 per family) when using either network or nonnetwork providers. There is a
calendar year maximum dental benefit of $2,000 per covered person.
Basic life benefits of $20,000 are provided to active state, education, and local government
employees. In addition to the basic life benefit of $20,000, participants may elect additional coverage
in increments of $20,000 up to the lesser of $300,000 or five times the participant’s salary.
Additional dependent life coverage is also available under three separate plans. The low option plan
offers dependent life coverage of $6,000 for spouses, $3,000 for children, and $1,000 for children
less than six months of age. The standard option plan offers dependent life coverage of $10,000 for
spouses, $5,000 for children, and $1,000 for children less than six months of age. The premier option
offers dependent life coverage of $20,000 for spouses, $10,000 for children, and $1,000 for children
less than six months of age.
34
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Notes to Basic Financial Statements
December 31, 2009 and 2008
(Continued)
Retirees may elect to retain the full coverage for basic life benefits held at the time of termination of
employment. Coverage thereafter may be decreased in $5,000 increments to a minimum of $5,000 or
totally terminated. Prior to July 1, 2002, no more than $15,000 of basic life insurance could be
retained after termination of employment. The retiree may retain dependent life coverage in force on
eligible dependents in $500 increments.
Disability benefits are based on the length of employment, base salary limited by a maximum
allowable salary and length of disability. There is a 30-day qualifying period for short-term
disability. Long-term disability becomes effective 180 days after disablement. Income from other
sources is used to reduce the benefit amount. The duration of the long-term benefit is determined
based upon the age of the participant at disablement and length of employment.
A high option and low option Medicare supplement benefit plan is available to those retired
participants and their dependents who are eligible to enroll in Medicare, where Medicare is the
primary payor. This coverage provides for reimbursement of Medicare-eligible expenses which may
not be fully covered by or which exceed the amount allowed by Medicare. Medicare Part A expenses
are generally reimbursed at 100% of eligible Medicare expenses not reimbursed by Medicare. The
Medicare Part A deductible is also fully reimbursed by OSEEGIB. Medicare Part B expenses are
generally reimbursed at 20% of eligible Medicare expenses not reimbursed by Medicare.
OSEEGIB has adopted Plan “J” for medical benefits for both the high option and low option plans in
accordance with the National Association of Insurance Commissioners’ schedule of Medicare
supplement plans, with the addition of a pharmacy prescription program, preventive care benefits,
out-of-country benefits and an at-home recovery benefit.
Pharmacy benefits for the high option Medicare supplement plan are the same as for the
HealthChoice high option plan, with a few minor differences in the formulary. The low option
Medicare supplement plan is modeled after the Center for Medicare and Medicaid Services (CMS)
standard Part D plan design. Once a participant reaches catastrophic coverage, OSEEGIB pays 100%
of the pharmacy cost rather than 95% per CMS’ standard Part D plan design.
Health benefits and dental benefits are provided directly by the HMOs and DMOs for all participants
who elect such coverage. For each participant who elects HMO or DMO coverage, excluding active
state employees, OSEEGIB collects and pays the premiums to each HMO or DMO carrier. For each
active state employee who elects HMO or DMO coverage, EBC collects and pays the premiums to
each HMO or DMO carrier. The amounts paid by OSEEGIB to each HMO or DMO are in
accordance with their respective contracts. Benefits are the responsibility of each HMO or DMO
carrier and are subject to the provisions defined in their insurance policies. OSEEGIB has no liability
for health benefits or dental benefits of participants who elect HMO or DMO coverage; therefore,
activity related to HMO, DMO, and vision benefits are not reflected in the basic financial statements
of OSEEGIB.
35
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Notes to Basic Financial Statements
December 31, 2009 and 2008
(Continued)
All benefits for OSEEGIB are processed and paid by third-party administrators (TPAs). The fees
incurred by OSEEGIB for services performed by the TPAs totaled approximately $16,400,000 and
$18,900,000 for the years ended December 31, 2009 and 2008, respectively. The decrease in 2009 is
a result of deductions from monthly invoices from the health and dental claims TPA for interest paid
to providers and performance penalties. TPA fees are included in administrative expenses in the
statements of revenues, expenses, and changes in fund equity.
A summary of available coverage and eligible groups for the years ended December 31, 2009 and
2008 is as follows:
Local
State Education government
employee employee employee OPERS TRS COBRA
Health X X X X X X
Dental X X X X X X
Life X X X X X
Disability X X
Medicare supplement X X X
(2) Summary of Significant Accounting Policies
(a) Basis of Accounting
OSEEGIB has prepared its financial statements in accordance with U.S. generally accepted
accounting principles for state and local governments. The Governmental Accounting Standards
Board (GASB) establishes the U.S. generally accepted accounting principles for state and local
governments. GASB requires that proprietary activities apply all applicable GASB pronouncements
and Financial Accounting Standards Board (FASB) Statements and Interpretations, Accounting
Principles Board Opinions, and Accounting Research Bulletins issued on or before November 30,
1989, to the extent that they do not conflict with GASB pronouncements. The entity can elect, at its
option, to apply all FASB Statements and Interpretations issued after November 30, 1989, except for
those that conflict with or contradict GASB pronouncements. OSEEGIB has adopted this option.
(b) Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period.
Management evaluates its estimates and assumptions on an ongoing basis using historical experience
and other factors, including the current economic environment, which management believes to be
reasonable under the circumstances. OSEEGIB adjusts such estimates and assumptions when facts
and circumstances dictate. As future events and their effects cannot be determined with precision,
actual results could differ significantly from these estimates. Changes in those estimates resulting
from continuing changes in the economic environment will be reflected in the financial statements in
future periods.
36
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Notes to Basic Financial Statements
December 31, 2009 and 2008
(Continued)
(c) Investments and Investment Income
Investments are stated at fair value based on quoted prices with changes in fair value included in the
statements of revenues, expenses and changes in fund equity. If quoted prices are not available from
active exchanges for identical instruments, then fair values are estimated using quoted prices from
less active markets, quoted prices of securities with similar characteristics, or by pricing models
utilizing other significant observable inputs. Investments in external investment pools, such as
commingled funds, are stated at fair value based on actual transaction values. The fair value for one
of the commingled funds is $12.49 at December 31, 2008 and the net asset value in the pool of
shares is $12.17. There was no difference in the fair value and the net asset value in the pool of
shares in the commingled fund at December 31, 2009.
OSEEGIB records investment purchases and sales based upon the trade date. Therefore, OSEEGIB
records either receivables or payables for unsettled sales or purchases, respectively. Such
transactions are usually settled within a few days after the trade date.
Realized gains and losses are determined on the average-cost method. The calculation of realized
gains and losses is independent of the calculation of the change in net unrealized gains and losses.
Realized gains and losses on investments that had been held in more than one year and sold in the
current year may have been recognized as unrealized gains and losses in prior years.
Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date.
(d) Office Equipment
Office equipment is recorded at cost and depreciated on a straight-line basis over the estimated
useful lives of the equipment, which range from 5 to 10 years. Purchases of equipment costing less
than $2,500 are considered to be immaterial and are expensed when purchased.
(e) Reserves
OSEEGIB establishes health and dental and life reserves based on the ultimate estimated cost of
settling claims that have been reported but not settled, and of claims that have been incurred but not
yet reported. Disability reserves are also established based on the estimated ultimate cost of settling
claims of participants currently receiving benefits and for disability claims incurred but not yet
reported to OSEEGIB. Long-term disability reserves are carried at the present value of expected
future benefits. The reserves are determined using OSEEGIB’s historical benefit payment
experience. These estimates are based on data available at the time of estimate and are reviewed by
OSEEGIB’s independent consulting actuaries. The health, dental, and life reserves and the disability
reserves include liabilities for claim processing expenses associated with paying claims which have
been incurred, but not yet paid. The length of time for which costs must be estimated depends on the
coverages involved.
37
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Notes to Basic Financial Statements
December 31, 2009 and 2008
(Continued)
Although reserves reflect OSEEGIB’s best estimates of the incurred claims to be paid, due to the
complex nature of the factors involved in the calculation, the actual results may be more or less than
the estimate. The claim reserves are recomputed on a periodic basis using actuarial and statistical
techniques which consider the effects of general economic conditions, such as inflation, and other
factors of past experience, such as changes in participant counts. Adjustments to claim reserves are
recorded in the periods in which they are made. Claims must be filed no later than the last day of the
calendar year immediately following the calendar year in which the loss is sustained unless an
extenuating circumstance can be shown to exist.
Premium deficiency reserves are required to be recorded when the anticipated costs of settling claims
plus policy maintenance costs for the following fiscal year are in excess of the anticipated premium
receipts for the following fiscal year. Anticipated investment income is considered in determining
whether a premium deficiency exists.
(f) Fund Equity
At December 31, 2009 and 2008, OSEEGIB has no legally required minimum fund equity. However,
the Board has elected to set a benchmark for minimum fund equity based upon the National
Association of Insurance Commissioners (NAIC), the Managed Care Organizations Risk Based
Capital Formula for the Health and Dental program, and the NAIC Life/Health Risk Based Capital
Formula for the Life and Disability programs. OSEEGIB utilizes the NAIC Risk Based Capital
methodology to establish the fund equity benchmark. The minimum fund equity benchmark by the
Board at December 31, 2009 and 2008 is approximately $154,276,000 and $139,925,000,
respectively.
The NAIC Risk Based Capital Formulas were selected as the basis for determining minimum fund
equity primarily due to the following factors:
 Degree and nature of the risks undertaken
 Size of OSEEGIB
 Degree of conservatism inherent in the premium rates
 Degree of safety desired
The primary risks that would threaten OSEEGIB’s solvency include the following:
 The risk that claims incurred will exceed premiums collected
 The risk of default or decline in value of OSEEGIB’s assets
 The risk of large monetary judgments stemming from possible lawsuits against OSEEGIB
38
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Notes to Basic Financial Statements
December 31, 2009 and 2008
(Continued)
A comparison of the minimum fund equity benchmark by the Board and unrestricted fund equity at
December 31, 2009 as reported in the basic financial statements is as follows (in thousands):
2009
Health and
Dental Disability
Program Life Program Program Total
Minimum fund equity $ 138,818 10,370 5,088 154,276
Unrestricted fund equity 116,886 17,892 24,657 159,435
A comparison of the minimum fund equity benchmark by the Board and unrestricted fund equity at
December 31, 2008 as reported in the basic financial statements is as follows (in thousands):
2008
Health and
Dental Disability
Program Life Program Program Total
Minimum fund equity $ 125,046 10,086 4,793 139,925
Unrestricted fund equity 67,832 20,282 21,619 109,733
Due to unfavorable claims experience in 2008 combined with the downturn in equity and credit
markets during 2008, OSEEGIB’s fund equity was below the Board’s current benchmark at
December 31, 2008.
As part of the rate setting process, the Board considers OSEEGIB’s total fund equity in comparison
with the minimum fund equity benchmark in setting rates towards achieving the minimum fund
equity benchmark. Title 74 of the Oklahoma Statutes, Section 1321C allows that OSEEGIB may
adjust rates mid-year if the need is substantiated by an actuarial determination. Consistent with prior
years, OSEEGIB does not anticipate the need for a mid-year rate adjustment for 2010.
(g) Premiums
Premiums are recognized in the period when the insurance coverage is provided. Premiums are due
monthly from the employers or participants based on the rates adopted by the Board.
(h) Medicare Part D Subsidy
As a Medicare Part D Prescription Drug Plan (PDP), OSEEGIB receives a monthly payment from
Medicare. The effect of these payments is to subsidize premiums for the individuals enrolled in the
PDP since they pay a reduced premium rate. This amount is approximately $25,173,000 and
$23,817,000 for the years ended December 31, 2009 and 2008, respectively, and is included in
premium revenue within the statements of revenues, expenses, and changes in fund equity.
39
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Notes to Basic Financial Statements
December 31, 2009 and 2008
(Continued)
(i) Pharmacy Rebate
Effective January 1, 1999, under OSEEGIB’s agreement with its pharmacy benefit manager,
OSEEGIB receives a guaranteed rebate for each non-Medicare Part D prescription. Effective
January 1, 2006, OSEEGIB also receives a specified percentage of manufacturers’ rebates received
by the pharmacy benefit manager related to Medicare Part D prescriptions. This amount is
approximately $13,060,000 and $12,145,000 for the years ended December 31, 2009 and 2008,
respectively, and is included in other operating revenue within the statements of revenues, expenses
and changes in fund equity.
(j) Risk Adjustment Premiums
Risk adjustment premiums are received from HMOs based on factors which are applied to premiums
remitted to HMOs for all non-Medicare primary members during the plan year, the factors are
intended to offset any adverse selection that may occur to OSEEGIB as a result of younger, healthier
members electing HMO coverage. This amount is approximately $1,670,000 and $2,147,000 for the
years ended December 31, 2009 and 2008, respectively, and is included in other operating revenue
within the statements of revenues, expenses and changes in fund equity.
(k) Administrative Expenses
Administrative expenses are primarily related to employees of OSEEGIB and professional services,
including fees paid to TPAs to process and pay benefits.
OSEEGIB does not record deferred acquisition costs since administrative expenses are primarily
maintenance expenses and not acquisition expenses. OSEEGIB maintains a budget approved by the
Board; however, it is not a legally adopted annual budget.
(l) Income Taxes
OSEEGIB obtained its latest determination letter dated March 30, 2005, in which the Internal
Revenue Service stated that income from the exercise of the essential governmental functions of
OSEEGIB is exempt from federal income taxes under Section 115 of the Internal Revenue Code
(the Code).
(m) Operating Revenues and Expenses
Balances classified as operating revenues and expenses are those which comprise the OSEEGIB’s
principal ongoing operations. Since OSEEGIB’s operations are similar to those of any other
insurance company, most revenues and expenses are considered operating.
(n) Change in Financial Statement Presentation
During 2006 and 2007, OSEEGIB applied the provisions of GASB Statement No. 43 (GASB 43),
Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, and presented the
portion of its activity related to covered active employees of participating employers as a public
entity risk pool and the portion of its activity related to covered retirees of participating employers as
40
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Notes to Basic Financial Statements
December 31, 2009 and 2008
(Continued)
an agency fund in accordance with the guidance for multiple-employer OPEB (other
post-employment benefits) plans that are not administered as trusts. During 2008, OSEEGIB
determined its activity related to covered retirees of participating employers does not meet the
definition of an OPEB plan and, therefore, is not subject to GASB 43. Additionally, as OSEEGIB is
not a cooperative group of governmental entities joining together to finance exposure to risk,
OSEEGIB determined it is not subject to the guidance for public entity risk pools in
GASB Statement No. 10, Accounting and Financial Reporting for Risk Financing and Related
Insurance Issues. OSEEGIB, as an instrumentality of the State of Oklahoma created to administer,
manage, and provide group health, dental, life, and disability insurance for active employees and
retirees of state agencies, school districts, and other governmental units, believes the preferred
method of accounting and reporting presentation is a special-purpose government engaged solely in
business-type activities, more specifically an insurance enterprise. Effective January 1, 2008,
OSEEGIB changed its financial statement accounting and reporting presentation and reported results
in a single enterprise fund presentation and no longer included an agency fund. Additionally, as a
result of the change in accounting and reporting presentation, disability reserves of approximately
$13,504,000 were required to be recognized and policy maintenance costs of approximately
$2,897,000 were required to be included in the premium deficiency reserve decreasing beginning
fund equity.
The total effect of the change in accounting and reporting presentation on fund equity on January 1,
2008 is as follows:
As originally Effect of
reported As adjusted change
Fund equity, January 1, 2008 $ 187,891,608 171,490,197 16,401,411
(3) Fair Values of Financial Instruments
Accounting Standards Codification Topic 820, Fair Value of Measurements and Disclosures, requires
OSEEGIB to disclose estimated fair values for its financial instruments. Fair value estimates are made at a
point in time, based on relevant market data as well as the best information available about the financial
instruments. Fair value estimates for financial instruments for which no or limited observable market data
is available are based on judgments regarding current economic conditions, credit and interest rate risk,
and loss experience. These estimates involve significant uncertainties and judgments and cannot be
determined with precision. As a result, such calculated fair value estimates may not be realizable in a
current sale or immediate settlement of the instrument. In addition, changes in the underlying assumptions
used in the fair value measurement technique, including discount rate and estimates of future cash flows,
could significantly affect these fair values. Fair value estimates, methods, and assumptions at
December 31, 2009 and 2008 are described below for OSEEGIB’s financial instruments. The carrying
value of all OSEEGIB’s financial instruments approximates fair value.
41
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Notes to Basic Financial Statements
December 31, 2009 and 2008
(Continued)
The carrying amounts reported in the balance sheets are at fair value for investment securities. Fair values
for debt securities are based on quoted market prices, where available. If quoted prices are not available
from active exchanges for identical instruments, the fair values are estimated using quoted prices from less
active markets, quoted prices of securities with similar characteristics, or by pricing models utilizing other
significant observable inputs. The fair values for equity securities are based on quoted market prices.
The carrying values of the receivable for unsettled investment sales, premiums receivable, interest and
dividends receivable, pharmacy rebate receivable, other receivables, premiums due to HMOs and other
insurers, payable for investment purchases, and other accrued liabilities approximate fair value due to the
short maturity of these financial instruments and the fact that they do not present undue credit concerns.
(4) Cash and Cash Equivalents
Cash includes amounts on deposit with the Office of State Treasurer (State Treasurer) in a pooled account,
which is required by the Oklahoma Statutes to be insured or collateralized. The amount of collateral
securities required to be pledged to secure public deposits is established by rules and regulations
promulgated by the State Treasurer. In accordance with the State Treasurer’s policies, the market value of
collateral securities to be pledged by financial institutions through the State Treasurer’s Office must be
110% of the carrying value of the amount on deposit, less any federal insurance coverage.
At December 31, 2009 and 2008, cash totaling $27,219,862 and $23,382,597, respectively, was deposited
with and collateralized by the official bond of the State Treasurer of Oklahoma.
The carrying amount and bank balance of the cash equivalents totaled $56,637,908 and $39,857,874 at
December 31, 2009 and 2008, respectively, and consists of an investment in a mutual fund composed of
short-term investments with an original maturity date of three months or less, which are readily convertible
into cash. The duration of the underlying investments in the money market mutual fund at December 31,
2009 and 2008 is approximately 50 and 55 days, respectively.
Custodial Credit Risk
Custodial credit risk for deposits is the risk that in the event of a bank failure, OSEEGIB’s deposits may
not be returned or OSEEGIB may not be able to recover collateral securities in the possession of an outside
party. OSEEGIB’s cash and cash equivalents include deposits that are insured, registered or for which the
securities are held by a custodian in OSEEGIB’s name.
42
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Notes to Basic Financial Statements
December 31, 2009 and 2008
(Continued)
(5) Investments
OSEEGIB’s investment policy is predicated on a multiple manager structure to provide the benefits of
more than one manager’s special skills and a diversity of investment styles. Upon approval of OSEEGIB’s
Board, external managers are appointed to assume the investment management function. The managers,
within guidelines determined by OSEEGIB’s Board, have full discretion to buy and sell investment assets
of OSEEGIB. Authorized investments are defined in Title 36 of the Oklahoma Statutes, as amended, and
OSEEGIB’s investment policy, and include U.S. government obligations, state and district obligations,
corporate obligations, mortgage-backed and assets-backed debt securities, and preferred and common
stock. All investments held by OSEEGIB are in compliance with statutes and the investment policy.
As of December 31, 2009 and 2008, OSEEGIB had the following investments:
2009 2008
Types of investments Fair values Duration (1) Fair values Duration (1)
Debt securities:
Commingled fund $ 63,935,654 3.85 $ 60,684,844 3.82
Asset-backed securities(2) 2,081,509 1.89 2,260,531 3.55
Corporate 13,846,397 6.31 10,323,072 5.52
Mortgages 15,459,450 3.03 24,765,825 1.88
Collateralized mortgage
obligations(2) 2,579,167 2.75 8,323,285 4.86
U.S. Treasuries 15,699,981 3.62 3,524,051 9.72
Municipals 1,189,688 13.51 — —
Collateralized mortgage-backed
securities (CMBS)(2) 4,486,015 2.52 — —
Total debt securities 119,277,861 109,881,608
Equities:
Domestic 56,070,327 43,885,516
Total investments $ 175,348,188 $ 153,767,124
(1) Interest rate risk is estimated using effective duration (in years).
(2) These include investments highly sensitive to interest rate changes.
43
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Notes to Basic Financial Statements
December 31, 2009 and 2008
(Continued)
Credit Risk
The credit risk profile as listed by Moody’s or Standards & Poor’s for debt securities and money market
mutual funds at December 31, 2009 and 2008 is as follows:
2009
Aaa Aa A Baa/Ba Not rated Total
Debt Securities:
Commingled fund (1) $ — — — — 63,935,654 63,935,654
Asset-backed securities 2,081,509 — — — — 2,081,509
Corporate 1,190,296 1,046,102 5,066,575 6,543,424 — 13,846,397
Mortgages 15,459,450 — — — — 15,459,450
Collateralized mortgage
obligations 2,509,541 — 69,626 — — 2,579,167
U.S. Treasuries 15,699,981 — — — — 15,699,981
Municipals — 1,189,688 — — — 1,189,688
CMBS 3,843,098 — 574,175 68,742 — 4,486,015
Total debt securities $ 40,783,875 2,235,790 5,710,376 6,612,166 63,935,654 119,277,861
Money market mutual funds $ — — — — 56,637,908 56,637,908
2008
Aaa Aa A Baa Not rated Total
Debt Securities:
Commingled fund (1) $ — — — — 60,684,844 60,684,844
Asset-backed securities 1,616,669 643,862 — — — 2,260,531
Corporate 865,465 1,062,245 5,029,890 3,365,472 — 10,323,072
Mortgages 23,218,443 58,098 — — 1,489,284 24,765,825
Collateralized mortgage
obligations 6,560,094 226,316 — — 1,536,875 8,323,285
U.S. Treasuries 3,524,051 — — — — 3,524,051
Total debt securities $ 35,784,722 1,990,521 5,029,890 3,365,472 63,711,003 109,881,608
Money market mutual funds $ — — — — 39,857,874 39,857,874
(1) There is no rating to the commingled fund; however, the average rating of the underlying
investments in the commingled fund as provided by the fund manager is Aa at both December 31,
2009 and 2008.
Credit Risk is the risk an issuer or other counterparty to an investment will not fulfill its obligations. The
Board’s investment policy authorizes OSEEGIB to invest in obligations of the U.S. Treasury, agencies and
instrumentalities, bankers’ acceptances rated AA or better, commercial paper rated A-1 or P-1 and A-2 or
P-2, fixed income investments rated investment grade and stocks of companies with a minimum
capitalization of $50,000,000, and other investments of similar risk.
44
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Notes to Basic Financial Statements
December 31, 2009 and 2008
(Continued)
Investments in “restricted securities,” including fixed income securities, preferred stock, common stock, or
any common stock acquired upon conversion thereof are prohibited. “Restricted securities” are securities
which have not been registered under the Securities Act of 1933 and are subject to restrictions on sale.
Engagements in short sales, purchases on margin, or investments in commodities or transactions of a
similar or speculative nature are prohibited.
Custodial Credit Risk
Custodial credit risk for investments is the risk that, in the event of the failure of the counterparty,
OSEEGIB will not be able to recover the value of its investments or collateral securities in the possession
of an outside party. The current master custodian has been approved by OSEEGIB’s Board. OSEEGIB’s
investments include investments that are insured or registered or for which the securities are held by a
custodian in OSEEGIB’s name. They may also include investments held for the custodian by the Federal
Reserve Bank or Depository Trust Corporation in OSEEGIB’s name.
Concentration of Credit Risk
An increased risk of loss occurs as more investments are acquired from one issuer. No issuer represents 5%
or more of OSEEGIB’s total investments. OSEEGIB’s policy states investments in one issuer shall not
exceed 2.5% of the fair value of each manager’s assets, except for obligations of the U.S. government or of
any state of the U.S. The policy also restricts investments in the common stock of any U.S. corporation to
no more than 5% of each manager’s assets valued at the lower of cost or market value, except where the
manager’s benchmark holds more than 5% in a single issue or with prior consent of OSEEGIB’s Board.
Interest Rate Risk
Interest rate risk is the risk changes in interest rates will adversely affect the fair value of an investment.
Fixed income investments held for longer periods are subject to increased risk of adverse interest rate
changes. OSEEGIB’s policy requires that the total fixed income portfolio maintain an average effective
maturity of 10 years or less and for average duration to be plus or minus 1 year from the benchmark, which
has been identified by management to assess the performance of each manager.
Investment Income
Net investment income (loss) for the years ended December 31, 2009 and 2008, is comprised of the
following:
2009 2008
Fixed income securities $ 5,094,578 6,800,564
Equity securities 1,091,041 1,398,710
Realized losses (2,876,954) (156,263)
Unrealized gains (losses) 17,102,790 (29,802,916)
Less investment expenses (438,206) (580,677)
Net investment income (loss) $ 19,973,249 (22,340,582)
45
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Notes to Basic Financial Statements
December 31, 2009 and 2008
(Continued)
(6) Office Equipment
The changes in office equipment for the years ended December 31, 2009 and 2008 are as follows:
2009 2008
Office equipment, at cost:
Balance, beginning of year $ 4,438,752 4,282,241
Additions 132,124 169,559
Retirements (406,976) (13,048)
Balance, end of year 4,163,900 4,438,752
Accumulated depreciation:
Balance, beginning of year 3,728,534 3,425,945
Depreciation expense 232,900 315,637
Retirements (406,976) (13,048)
Balance, end of year 3,554,458 3,728,534
Office equipment, net $ 609,442 710,218
(7) Health and Dental and Life Reserves
The following represents changes in the Health and Dental and Life Reserves during the year ended
December 31, 2009 (in thousands):
Health
and Dental Life Total
Reserves, beginning of year $ 93,771 4,708 98,479
Incurred claims expense provisions for
insured events of the current year 782,521 22,474 804,995
Changes in provisions for
insured events of prior years 10,425 1,300 11,725
792,946 23,774 816,720
Less payments:
Claims expense insured events of the
current year 684,927 19,476 704,403
Claims expense insured events of
prior years 98,986 4,193 103,179
783,913 23,669 807,582
Reserves, end of year $ 102,804 4,813 107,617
46
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Notes to Basic Financial Statements
December 31, 2009 and 2008
(Continued)
As a result of changes in estimates of insured events in prior years, the provision for claims increased by
approximately $11,725,000 in the year ended December 31, 2009, due primarily to less favorable than
anticipated claims experience.
The following represents changes in the Health and Dental and Life Reserves during the year ended
December 31, 2008 (in thousands):
Health
and Dental Life Total
Reserves, beginning of year $ 84,797 3,787 88,584
Incurred claims expense provisions for
insured events of the current year 764,751 21,540 786,291
Changes in provisions for
insured events of prior years 1,187 (536) 651
765,938 21,004 786,942
Less payments:
Claims expense insured events of the
current year 673,810 17,241 691,051
Claims expense insured events of
prior years 83,154 2,842 85,996
756,964 20,083 777,047
Reserves, end of year $ 93,771 4,708 98,479
As a result of changes in estimates of insured events in prior years, the provision for claims increased by
approximately $651,000 in the year ended December 31, 2008, due primarily to less favorable than
anticipated claims experience.
47
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Notes to Basic Financial Statements
December 31, 2009 and 2008
(Continued)
(8) Disability Reserves
The following represents changes in the disability reserves during the years ended December 31, 2009 and
2008 (in thousands):
2009 2008
Reserves, beginning of year $ 13,299 13,504
Incurred claims:
Provisions for insured events of the current year 4,782 4,756
Changes in provisions for insured events of prior years (1,127) (2,669)
3,655 2,087
Payments:
Claims attributable to insured events of the current year 584 448
Claims attributable to insured events of prior years 2,561 1,844
3,145 2,292
Reserves, end of year $ 13,809 13,299
OSEEGIB estimates current and noncurrent reserves for disability reserves based on historical claim
experience.
As a result of changes in estimates of insured events in prior years, the provision for disability reserves
decreased by approximately $1,127,000 and $2,669,000 in the years ended December 31, 2009 and 2008,
respectively, due primarily to favorable claims development.
The following is a brief description of the significant assumptions used for disability reserves:
 Actual claim experience for the group, based upon claim lag studies, was used for males and
females for short-term disability.
 The 1987 Commissioner’s Group Disability Table was used.
 The discount rate was 3.5% for the years ended December 31, 2009 and 2008, respectively.
(9) Premium Deficiency Reserve
A premium deficiency reserve is recorded at the end of the year when the anticipated costs of settling
claims plus policy maintenance costs for the following year are in excess of the anticipated premium
receipts for the following year. Anticipated premium receipts are projected based on the premium rates
adopted by the Board for the following plan year and current enrollment levels. Anticipated investment
income is considered in determining whether a premium deficiency exists. Incurred claims for subsequent
48
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Notes to Basic Financial Statements
December 31, 2009 and 2008
(Continued)
years are projected based on current year incurred claims, increased for anticipated inflation rates. The
Board does not have the intention to change the adopted premium rates after the fiscal year has begun.
OSEEGIB determined that reserves for premium deficiency were necessary as of December 31, 2008 in
the amount of $11,915,000, and no premium deficiency reserve was necessary as of December 31, 2009.
(10) Employee Benefit Plans
For the fiscal year ended December 31, 2008, OSEEGIB implemented GASB Statement No. 50, Pension
Disclosures – an amendment of GASB Statements No. 25 and No. 27.
GASB Statement No. 50 amends GASB Statement No. 27 to require employers participating in a
cost-sharing plan to include the following in the note disclosure: the required contribution rates and the
employer(s) in dollars and the percentage of that amount contributed for the current year and each of the
two preceding years, and how the contractually required contribution rate is determined (for example, by
statute or by contract, or on an actuarially determined basis) or that the cost-sharing plan is financed on a
pay-as-you-go basis.
GASB Statement No. 50 also amends GASB Statement No. 27 to require that if a cost-sharing plan does
not issue a publicly available stand-alone plan financial report prepared in accordance with the
requirements of GASB Statement No. 25, as amended, and the plan is not included in the financial report
of another entity, each employer in that plan should present, as required supplementary information, the
schedules of funding progress and employer contributions for the plan (and notes to their schedules). Also,
each employer should disclose that the information presented relates to the cost-sharing plan as a whole, of
which the employer is one participating employer, and should provide information helpful for
understanding the scale of the information presented relative to the employer. OSEEGIB has made all
required disclosures under GASB Statement No. 50.
(a) Retirement Plan
OSEEGIB contributes to the Oklahoma Public Employees Retirement Plan (the Retirement Plan), a
cost-sharing multiple-employer public employee retirement system administered by the Oklahoma
Public Employees Retirement System (OPERS). The Retirement Plan provides retirement, disability,
and life benefits to Retirement Plan members and beneficiaries. The benefit provisions are
established and may be amended by the legislature of the state of Oklahoma. Title 74 of the
Oklahoma Statutes, Sections 901-943, as amended, assigns the authority for management and
operation of the Retirement Plan to the Board of Trustees of OPERS. OPERS issues a publicly
available annual financial report that includes financial statements and required supplementary
information for the Retirement Plan. That annual report may be obtained by writing to OPERS, 6601
N. Broadway Extension, Suite 129, Oklahoma City, Oklahoma, 73116 or by calling 800.733.9008.
Retirement Plan members, state employees and OSEEGIB are required to contribute at a rate set by
statute. The contribution requirements of Retirement Plan members and OSEEGIB are established
and may be amended by the legislature of the state of Oklahoma. Each member participates based on
his or her gross salary earned (excluding overtime).
49
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Notes to Basic Financial Statements
December 31, 2009 and 2008
(Continued)
The contribution rate for OSEEGIB and employees for 2009, 2008, and 2007 is as follows:
Employee rate
Salaries
Salaries greater than
$25,000 or less 25,000 Employer rate
July 1, 2009 – December 31, 2009 3.5% 3.5% 15.5%
July 1, 2008 – June 30, 2009 3.5 3.5 14.5
July 1, 2007 – June 30, 2008 3.5 3.5 13.5
January 1, 2007 – June 30, 2007 3.5 3.5 12.5
OSEEGIB’s contributions to the Retirement Plan for the years ended December 31, 2009, 2008, and
2007 were approximately $1,224,000, $1,140,000, and $1,052,000, respectively, and were equal to
OSEEGIB’s required contributions for the year. Contributions are included in administrative
expenses in the statements of revenues, expenses and changes in fund equity.
(b) Deferred Compensation Plan
The State offers to its own employees, state agency employees, and other duly constituted authority
or instrumentality employees a deferred compensation plan created in accordance with Internal
Revenue Code Section 457 and Chapter 45 of Title 74, Oklahoma Statutes. The Oklahoma State
Employees Deferred Compensation Plan (SoonerSave) is a voluntary plan that allows participants to
defer a portion of their salary into SoonerSave. Participation allows a person to shelter the portion of
their salary that they defer from current federal and state income tax. Taxes on the interest or
investment gains on this money, while in SoonerSave, are also deferred. The deferred compensation
is not available to employees until termination, retirement, death, or approved unforeseeable
emergency.
Under SoonerSave, the untaxed deferred amounts are invested as directed by the participant among
various investment options. Effective January 1, 1998, a Trust and Trust Fund covering SoonerSave
assets was established pursuant to federal legislation enacted in 1996, requiring public employers to
establish such trusts for plans meeting the requirements of Section 457 of the Internal Revenue Code.
Under terms of the Trust, the corpus or income of the Trust Fund may be used only for the exclusive
benefit of SoonerSave participants and their beneficiaries. Further information may be obtained from
the Oklahoma State Employees Deferred Compensation Plan audited financial statements for the
year ended June 30, 2009. OSEEGIB believes it has no liabilities with respect to SoonerSave.
50
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Notes to Basic Financial Statements
December 31, 2009 and 2008
(Continued)
(11) Compensated Absences
It is OSEEGIB’s policy to accrue compensated absences for annual leave, including the related employer’s
share of social security and Medicare taxes, in accordance with state statute, not to exceed:
 240 hours for employees with continuous service of less than five years, or
 480 hours for employees with continuous service of five years or more.
During 2009, OSEEGIB’s liability for compensated absences increased by approximately $94,000 for
99 employees, decreased by approximately $85,000 for 65 employees, and did not change for
14 employees.
During 2008, OSEEGIB’s liability for compensated absences increased by approximately $100,000 for
101 employees, decreased by approximately $67,000 for 64 employees, and did not change for
13 employees.
OSEEGIB’s liability for compensated absences at December 31, 2009 and 2008, amounted to
approximately $924,000 and $915,000, respectively, and is included in other accrued liabilities in the
balance sheets.
(12) Operating Leases
OSEEGIB has agreements for one-year commitments to lease office space and equipment with options to
renew for additional periods. If the leases are renewed in accordance with the options in the agreements,
the future minimum rentals for operating leases as of December 31, 2009, are as follows:
2010 $ 553,541
2011 226,857
2012 117,962
2013 112,548
$ 1,010,908
Rent expense for office space and equipment for the years ended December 31, 2009 and 2008 was
approximately $616,000 and $723,000, respectively, and is included in administrative expenses in the
statements of revenues, expenses and changes in fund equity.
(13) Risks and Uncertainties
OSEEGIB invests in various investment securities. As described in note 5, investment securities are
exposed to various risks such as interest rate, market and credit risks. It is at least reasonably possible that
changes in the values of investment securities will occur in the near term, and such changes could
materially affect the amounts reported in the balance sheets.
51
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Notes to Basic Financial Statements
December 31, 2009 and 2008
As described in note 2, the estimates of reserves are determined based on actuarial and statistical
techniques, which considers the effects of general economic conditions, such as inflation, and other factors
of past experience, such as changes in participant counts, all of which are subject to change. Due to
uncertainties inherent in the estimation and assumption process, it is at least reasonably possible that
changes in these estimates and assumptions in the near term would be material to the financial statements.
(14) Commitments and Contingencies
OSEEGIB’s legal counsel has determined that the statute of limitations for claims denied or paid
improperly is three years. Typically, all claims are reported within a 24-month period. Currently,
OSEEGIB is not aware of any material claims that were denied or paid improperly that should be reserved
for in the basic financial statements. To the extent such claims exist, OSEEGIB may be responsible for
payment.
During 2003, the Oklahoma Legislature created the Medical Expense Liability Revolving Fund (the Fund),
which enacted a fee to cover inmate medical costs. By law, OSEEGIB is the administrator of the Fund.
Any person convicted of certain offenses is required to pay a fine of $10, which goes into the Fund. The
monies from the Fund are used when an inmate’s medical costs exceed $15,000 up to a maximum of
$100,000. As of December 31, 2009 and 2008, the Fund has assets and liabilities of approximately
$1,071,000 and $940,000, respectively, which are included in the balance sheets.
During 1995, the Oklahoma Legislature created the Health Insurance High Risk Pool (the Pool), which was
designed to provide health insurance for certain state residents who are unable to obtain coverage through
other insurers. All insurers and reinsurers providing health insurance or reinsurance in the state of
Oklahoma are required to participate in the Pool. With the exception of OSEEGIB, all self-insured plans
are exempted from participation. Participating insurers are assessed periodically. OSEEGIB has recorded
assessments totaling approximately $2,101,000 and $2,135,000 during the years ended December 31, 2009
and 2008, respectively, which is included in administrative expense in the statements of revenues, expenses
and changes in fund equity. Participating insurers may also be assessed additional amounts if the Pool
experiences adverse claim development.
In the normal course of operations, there are various legal actions and proceedings pending against
OSEEGIB. In management’s opinion, the ultimate liability, if any, resulting from these legal actions will
not have a material adverse effect on OSEEGIB’s financial position, results of operations, or liquidity.
Section
Statistical
2009 2008 2007 (2) 2006 (2) 2005 2004 2003 2002 2001
Short (1)
2001 2000
Minimum fund equity
Fixed assets net of accumulated depreciation
Other fund equity
Total fund equity
Minimum fund equity
Other fund equity
Total fund equity
Minimum fund equity
Other fund equity
Total fund equity
Minimum fund equity
Fixed assets net of accumulated depreciation
Other fund equity
Total fund equity
$ 138,818
609
(21,931)
117,496
10,370
7,522
17,892
5,088
19,569
24,657
154,276
609
5,160
$ 160,045
125,046
710
(57,214)
68,542
10,086
10,196
20,282
4,793
16,826
21,619
139,925
710
(30,192)
110,443
120,344
856
(372)
120,828
10,106
14,670
24,776
5,083
20,803
25,886
135,533
856
35,101
171,490
116,936
1,340
(2,831)
115,445
9,399
11,060
20,459
4,485
22,399
26,884
130,820
1,340
30,628
162,788
106,302
1,838
12,231
120,371
8,293
11,530
19,823
4,061
21,698
25,759
118,656
1,838
45,459
165,953
93,482
2,344
20,738
116,564
6,271
13,565
19,836
4,421
21,332
25,753
104,174
2,344
55,635
162,153
84,064
2,777
(4,702)
82,139
6,111
12,552
18,663
3,971
21,397
25,368
94,146
2,777
29,247
126,170
72,050
2,253
(23,530)
50,773
5,375
12,933
18,308
2,944
19,896
22,840
80,369
2,253
9,299
91,921
67,070
1,791
(13,334)
55,527
5,728
15,791
21,519
3,128
24,008
27,136
75,926
1,791
26,465
104,182
59,022
813
39
59,874
5,177
15,200
20,377
3,434
25,222
28,656
67,633
813
40,461
108,907
53,424
760
7,235
61,419
5,519
17,628
23,147
3,641
24,529
28,170
62,584
760
49,392
112,736
Fund Equity Over the Last Ten Years
(Accrual basis of accounting) l (Amounts expressed in thousands)
(1) OSEEGIB moved to a calendar year on January 1, 2002 from a June 30 fiscal year.
(2) The 2007 and 2006 financial information has been adjusted to reflect the change in accounting principle and reporting presentation for comparability purposes.
Life Program
Disability Program
Combined Programs
Health & Dental Program
Table 1
52
2009 2008 2007 (4) 2006 (4) 2005 2004 (2) 2003 (2) 2002 2001
Short (3)
2001 2000
Expenses
Health and Dental Program
Benefits including claim reserves
Change in premium deficiency reserves
Administrative and claim processing expense
$ 792,950
(11,915)
36,125
765,931
(12,712)
36,830
731,807
24,627
39,807
700,005
(9,065)
38,091
657,653
9,065
33,465
576,243
-
29,311
521,914
-
29,307
440,794
-
26,872
200,799
-
13,077
362,374
-
26,771
326,370
-
24,014
Total Health and Dental Program expense 817,160 790,049 796,241 729,031 700,183 605,554 551,221 467,666 213,876 389,145 350,384
Life Program
Benefits including claim reserves
Change in premium deficiency reserves
Administrative and claim processing expense
23,774
-
897
21,005
-
726
15,278
-
811
17,305
-
757
16,097
-
693
14,433
-
719
14,042
-
774
13,215
(2,068)
786
4,497
(1,100)
358
10,917
800
719
10,460
(402)
738
Total Life Program expense 24,671 21,731 16,089 18,062 16,790 15,152 14,816 11,933 3,755 12,436 10,796
Disability Program
Benefits including disability reserves
Administrative and claim processing expense
3,652
1,401
2,093
1,161
6,052
604
3,702
956
3,234
831
3,962
687
2,555
636
2,947
696
1,549
297
953
721
606
683
Total Disability Program expense 5,053 3,254 6,656 4,658 4,065 4,649 3,191 3,643 1,846 1,674 1,289
Combined Programs
Benefits including claim and disability reserves
Change in premium deficiency reserves
Administrative and claim processing expense
820,376
(11,915)
38,423
789,029
(12,712)
38,717
753,137
24,627
41,222
721,012
(9,065)
39,804
676,984
9,065
34,989
594,638
-
30,717
538,511
-
30,717
456,956
(2,068)
28,354

Comprehensive Annual
Financial Report
Year Ended December 31, 2009
A Component Unit of the State of Oklahoma
He lthChoice
State and Education Employees
Group Insurance Board
Oklahoma
Comprehensive
Annual
Financial
Report
A Component Unit of the State of Oklahoma
Prepared by the Finance Division
Year Ended
December 31, 2009
This publication was printed by the Oklahoma State and Education Employees Group Insurance Board as authorized by 74 O.S. SUPP.
1989, Section 1301, et seq. 50 copies have been printed at a cost of $5.062 each. Copies have been deposited with the Publications
Clearinghouse of the Oklahoma Department of Libraries.
Table of Contents
Introductory Section
Letter of Transmittal – Includes exhibits 1–4. . . . . . . . . . . . . . 1-13
Executive Organizational Chart. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
List of Principal Officials . . . . . . . . . . . . . . . . . . . . . . . . . 15-16
Financial Section
Independent Auditors’ Report . . . . . . . . . . . . . . . . . . . . . 17
Management’s Discussion and Analysis . . . . . . . . . . . . . . . 19-26
Basic Financial Statements
Balance Sheets as of December 31, 2009 and 2008 . . . . . . . . . . . . . 27
Statements of Revenues, Expenses, and Changes in
Fund Equity for the Years Ended December 31, 2009 and 2008 . . . . . 28
Statements of Cash Flows for the
Years Ended December 31, 2009 and 2008 . . . . . . . . . . . . . 29
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . 30-51
Statistical Section Table No.
Fund Equity . . . . . . . . . . . . . . . . . . . . . . . 1 . . . . . . . . 52
Change in Fund Equity . . . . . . . . . . . . . . . . . . 2 . . . . . . 53-54
Operating Revenues by Type of Entity . . . . . . . . . 3 . . . . . . . . 55
Top Ten Sources of Premium Revenue . . . . . . . . . 4 . . . . . . . . 56
Demographic Statistics for Health Coverage
Number and Type of Participants. . . . . . . . 5A-5B . . . . .57-58
Monthly Premiums by
Coverage Type and Billing Categories . . . . . 6A-6C . . . . .59-61
Outside Insurance Carriers . . . . . . . . . . . . . . . 7A-7C . . . . .62-64
Introductory
Section
Oklahoma State and Education Employees Group Insurance Board
3545 N.W. 58th Street, Suite 110 Oklahoma City, OK 73112
405-717-8701 1-800-543-6044 www.healthchoiceok.com l l
l
July 7, 2010
To the citizens of the State of Oklahoma:
The comprehensive annual financial report for the Oklahoma State and Education Employees
Group Insurance Board (OSEEGIB) for the fiscal year ended December 31, 2009, is hereby
submitted. Responsibility for both the accuracy of the data, and the completeness and fairness of
the presentation, including all disclosures, rests with the management of the Oklahoma State and
Education Employees Group Insurance Board. To the best of our knowledge and belief, the enclosed
data is accurate in all material respects and is reported in a manner designed to present fairly the
financial position and results of operations of OSEEGIB. All disclosures necessary to enable the
reader to gain an understanding of OSEEGIB’s financial activities have been included.
The comprehensive annual financial report is presented in three sections: introductory,
financial, and statistical. The introductory section includes this transmittal letter, OSEEGIB’s
executive organizational chart, and a list of principal officials. The financial section includes
the independent auditors’ report, management’s discussion and analysis (MD&A), and the basic
financial statements. The statistical section includes selected financial and demographic information,
presented on a multiyear basis.
OSEEGIB is a special-purpose government entity engaged solely in business-type activities.
OSEEGIB is a legal trust which administers, manages and provides group health, dental, life and
disability insurance for active employees and retirees of state agencies, school districts and other
governmental units of the State of Oklahoma. OSEEGIB provides insurance solely to eligible
employees, dependents and retirees.
It is OSEEGIB’s mission to serve Oklahoma by providing, with the highest degree of
efficiency, a wide range of quality insurance benefits that are competitively priced and uniquely
designed to meet the needs of participants.
OSEEGIB provides a self-insured health, dental, life and disability program (HealthChoice),
which is actuarially rated to provide premiums adequate to meet the payment of all claims,
administrative expenses, and any change in reserve estimates. OSEEGIB maintains reserves to
provide for current claim liabilities as required. At the present time, OSEEGIB has not transferred
any risk of loss through reinsurance contracts.
Oklahoma State and Education Employees Group Insurance Board
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Total Primary Participants
HealthChoice and HMO
Year Ended December 31, 2009
Exhibit 1
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
HealthChoice Participation
HMO Participation
Education
Active
State
Active
Education
Medicare
State
Medicare
Education
Pre-Medicare
Local
Government
State
Pre-Medicare
During the year ended December 31, 2009, participants could choose between HealthChoice
and four federally qualified health maintenance organizations (HMO) during their initial enrollment.
Each HMO requires participants to reside or work within a designated service area, which consists
primarily of the Oklahoma City and Tulsa metro areas, but is expanding to rural parts of Oklahoma
as provider networks are established. HealthChoice has no such restriction and is thus available
to all eligible participants statewide. After enrollment, members have the opportunity to change
health carriers during an annual option period. Coverage elections may be changed during the year
if the member experiences a change in family status event as defined by Internal Revenue Service
Code Section 125.
The following chart illustrates total primary participation in coverage offered by HealthChoice
and HMOs by type of entity as of December 31, 2009.
Among the active primary members, approximately 24% were covered by the HMO plans
at December 31, 2009. For the Medicare and pre-Medicare population, approximately 9% were
covered by the HMO plans at December 31, 2009.
Each year during the months of October and November, participants may change their
coverage elections for the next year. All carrier changes and coverage elected during this period
will be effective January 1 and remain in effect until December 31 of the same year.
OSEEGIB, by statute, provides insurance coverage to all employees and dependents that
meet eligibility requirements. An employee’s coverage begins the first day of the month following
the month of employment. The employee has thirty days after beginning employment to acquire
Oklahoma State and Education Employees Group Insurance Board
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Available Coverage by Participant Group
State
Employees
Education
Employees
Local
Government
Employees
OK Public
Employees
Retirement
System
Teachers’
Retirement
System
Survivors COBRA
Health 4 4 4 4 4 4 4
Dental 4 4 4 4 4 4 4
Life 4 4 4 4 4 4
Disability 4 4
Medicare
Supplement 4 4 4 4
health, dental, and/or life insurance for his dependents. If the employee elects dependent coverage,
the employee must cover all eligible dependents, unless the dependent is covered by other group
insurance. The employee also has thirty days after acquiring a new dependent in which to add that
dependent. After this period, an employee may still add dependents during the aforementioned
annual option period. Coverage could be delayed, however, if the dependent has been dropped in
the past twelve (12) months.
An active employee who leaves employment may retain certain insurance coverage depending
on his status at the end of his employment. The former employee may also continue dependent
coverage that was in effect while he was an active employee. Retired employees may continue
all health, dental, and life coverage. If the member has vested his retirement benefit but is not yet
eligible to draw retirement benefits, he also retains the right to health, dental and life coverage. In
the event an employee terminates employment or a dependent loses eligibility due to divorce or by
exceeding age limitations, health and dental coverage may be continued if the member and/or his
dependent meet the requirements set forth under COBRA.
The following table illustrates the available coverage by participant group:
ECONOMIC OUTLOOK
During 2009 the economy of the nation as well as the state of Oklahoma was suffering.
Governor Brad Henry, during his State of the State Address on February 1, 2010 said, “The economic
storm that has seized our nation has also battered Oklahoma. We face a budget shortfall of more
than 1 billion dollars. State programs and agencies have already experienced substantial cuts.
The state’s lagging revenues reflect the fact that far too many Oklahomans and their families are
struggling with lost jobs and lost wages.” He went on to say “Certainly, more cuts are unavoidable.
Agencies and programs, already hit hard by fiscal reality, will be asked to absorb further reductions.
There will be an impact, and it will be painful.”
The economic issues facing the state, its agencies and school districts, other
participating groups, and their employees are a key consideration when OSEEGIB sets premium
rates. The Board is very aware that increases in premiums affect the already tight budgets of
participating groups, as well as individual members. Alternatives to rate increases such as changes
Oklahoma State and Education Employees Group Insurance Board
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in co-payments or deductibles must be considered, especially when groups are facing budget cuts.
OSEEGIB’s Board is faced with the daunting task of weighing the alternatives and making the
difficult and sometimes unpopular decisions that are necessary to meet projected costs. OSEEGIB’s
goal is to keep premiums as low as possible and continue to provide quality and affordable healthcare
to employees and retirees of state, education, and local government entities.
Healthcare reform
The economy of healthcare is in a state of change, now more than ever in recent history.
The Patient Protection and Affordable Care Act (PPACA) signed by President Obama on March 23,
2010 will have a significant economic effect on health insurers. PPACA contains wide-sweeping
changes for individuals, employers, and insurers, some of which are expensive and will result in
increases to health insurance premiums. OSEEGIB is closely monitoring all issues related to the
PPACA. PPACA is discussed further in the Legislative section of this letter.
Healthcare trends
The insurance industry monitors healthcare costs by establishing a percentage of cost
increases known as ‘trend’. The definition and factors affecting trend are discussed in Management’s
Discussion and Analysis.
Nationwide, while healthcare costs continue to increase, the rate at which they are increasing
has slowed over the past few years. However, healthcare trends remain well over the rate of inflation.
For the second consecutive year, prescription drug trends are projected to be lower than medical
plan trends. According to the 2009 Segal Survey, projected trends for PPO plans for 2010 are as
follows:
• Medical (Actives & Retirees < Age 65) 10.5%
• Medical (Retirees Age 65+) 9.5%
• Prescription Drug 9.1%
• Dental (Indemnity Plans) 6.2%
Projected trends for 2010 for medical costs are slightly higher than those projected for 2009,
while the prescription drug and dental trends for 2010 are slightly lower than those projected for
2009.
OSEEGIB’s actuaries used the following trends for setting rates for 2010:
• Medical (Actives & Retirees < Age 65) 10.0%
• Medical (Retirees Age 65+) 7.0%
• Prescription Drug 9.1%
• Dental 6.0%
The actual trends experienced by OSEEGIB for 2009 are discussed in Management’s
Discussion and Analysis.
Oklahoma State and Education Employees Group Insurance Board
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According to the Segal Survey, price inflation for services and supplies continues to be the
biggest element of overall medical plan trend. In 2010, trends in utilization rates are expected to
increase compared to 2009 for both hospital and physician services.
Investment outlook
With the global economic downturn in 2008, OSEEGIB’s investment portfolio experienced
losses that continued throughout the first quarter of 2009. By April 2010, OSEEGIB had recovered
72% of what was lost during the downturn. However, market volatility remains and the market
value of investments continues to fluctuate widely from month to month.
More information on how economic conditions affected OSEEGIB in 2009 as well as
OSEEGIB’s 2009 trend experience is included in Management’s Discussion and Analysis.
MAJOR INITIATIVES
The Centers for Medicare and Medicaid Services (CMS) approved HealthChoice as a
Medicare Part D Prescription Drug Plan pursuant to the Medicare Prescription Drug Benefit,
Improvement and Modernization Act, effective January 1, 2006. As a result of the subsidy amount
paid by CMS totaling approximately $25 million annually, HealthChoice was able to reduce
premiums for Medicare-eligible individuals by over $50 per month from 2006 through 2009 and
the savings is expected to continue in future years.
OSEEGIB began offering a High Deductible Health Plan on January 1, 2008. OSEEGIB
requires the participant to have a Health Savings Account (HSA) before enrolling in the high
deductible plan. The high deductible plan has a $1,500 deductible for an individual and a $3,000
deductible per family.
For several years the cost of outpatient care has risen at a significantly faster rate than
inpatient care. To provide better control over the costs of outpatient care, OSEEGIB recontracted
with nearly 500 network facilities, changing the reimbursement methodology for outpatient facilities.
The types of facilities involved were hospitals, dialysis facilities, rehabilitation centers, sleep study
centers and skilled nurse facilities. The new contracts went into effect April 1, 2008.
OSEEGIB began enhancing benefits to encourage tobacco cessation in 2008 by allowing
active and retired members and enrolled dependents to obtain all FDA-approved tobacco cessation
drugs without prior authorization. OSEEGIB has taken this initiative much further in 2010, by
reducing copays on tobacco cessation prescription drugs to $5.00. Effective January 1, 2011, this
same copayment benefit will be extended to Medicare members. In addition, OSEEGIB entered
into an agreement with the Tobacco Settlement Endowment Trust (TSET) to provide, at no cost to
the member, counseling and up to two 12-week courses of over-the-counter nicotine replacement
treatment (gum, patch, lozenge) to HealthChoice members who want to quit smoking.
OSEEGIB intends to contract with a vendor to administer a Health Risk Assessment (HRA)
for the benefit of HealthChoice members. The program will empower, educate and motivate members
Oklahoma State and Education Employees Group Insurance Board
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to take action and improve their health and safety. In addition, the HRA vendor will provide data
that OSEEGIB can use to assess various risks of the group as a whole and act to reduce the risk.
OSEEGIB is further evaluating coordinating a disease management program with the HRA.
As a sponsor of an early retiree program (HealthChoice), OSEEGIB submitted on June 29,
2010 its application to participate in the Early Retiree Reinsurance Program of PPACA recently
passed by Congress. PPACA mandates the application include a description for the cost-savings
programs and procedures currently in place for chronic and high cost claimants, a projection of the
reinsurance amount, and a description of the intended uses of the funds. The U.S. Department of
Health and Human Services (HHS) must approve the application before a plan can participate in
the program. If the application is approved, then 80% of the amount of an early retiree’s medical
and pharmacy claims between $15,000 and $90,000 in an eligible plan year may be reimbursed to
OSEEGIB. OSEEGIB projects a reinsurance amount of $36 million for two years and believes the
$5 billion allocated for this program will suffice for at least two years, if not longer. If approved,
it is OSEEGIB’s intent to use the proceeds to reduce premiums.
OSEEGIB’s actuaries are providing data analytics to better enable OSEEGIB to evaluate
utilization and costs at a detail level that has not been readily available in the past. The data
compares utilization and costs from year to year and to national norms. OSEEGIB will be using
this data to evaluate fee schedules and trends and to promote wellness for members. Members will
receive reminders for certain screenings when a member’s demographics and utilization suggest
the reminder is appropriate. OSEEGIB’s third party claims administrator will also be providing
additional data in 2011 based on claims data that will further enhance identification of trends in
healthcare on the member and provider levels.
OSEEGIB is doing its part to encourage the preservation of the environment by eliminating
paper wherever possible. Beginning June 2010, HealthChoice members can access their Explanation
of Benefits (EOB) online and opt out of receiving paper EOBs. HealthChoice network providers
also have online access to their Remittance Advices. Employer groups may access their bill online
and may opt out of receiving a paper bill. Numerous reports are now being provided electronically.
In addition, OSEEGIB’s third party administrators will be providing electronic information to the
state’s flexible spending plan that will reduce the paper documentation required for filing a flexible
spending account claim.
LEGISLATION
The following are recently passed laws that have an effect on OSEEGIB:
Federal
The American Recovery and Reinvestment Act (ARRA) was a wide-sweeping act with
limited but significant effect on OSEEGIB. The Act was signed and effective February 17, 2009.
The Act provided for a federal subsidy towards the COBRA premium for any individual who was
involuntarily terminated from employment. This Act required employers to facilitate this subsidy by
ensuring that the member was only billed 35% of the monthly premium. Employers were required
Oklahoma State and Education Employees Group Insurance Board
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to pay the other 65% and obtain reimbursement through a credit on the employer’s payroll tax
return. Since OSEEGIB directly bills members electing the COBRA benefit, this Act required a
great amount of communication and coordination between OSEEGIB and participating groups.
As discussed in the Economic Outlook section of this letter, the Patient Protection and
Affordable Care Act (PPACA) contains wide-sweeping healthcare reform that affects OSEEGIB,
its participating groups, members, and healthcare providers.
OSEEGIB has responded to the PPACA by designating a primary committee and several
subcommittees who are very involved in evaluating the Act and ensuring that OSEEGIB will be
in compliance with every requirement. Fortunately, OSEEGIB already complies with many of the
mandates. PPACA contains language exempting existing insurance plans from some of the mandates
as long as they maintain ‘grandfathered’ status. OSEEGIB anticipates maintaining grandfathered
status for 2011 but may not keep that status in later years. Changes that will affect OSEEGIB are
as follows:
• Plans are required to provide dependent coverage until an adult child (married or unmarried)
turns 26. OSEEGIB currently covers dependent children up to age 25, but beginning January
1, 2011 will cover dependent children up to age 26.
• Plans are prohibited from applying annual and lifetime dollar limits. OSEEGIB currently
does not have either type of limit for medical claims; however, the $2 million cap on
pharmacy claims will be removed.
• PPACA requires plans to provide a host of preventive services to members at no cost to the
member. This requirement is estimated to cost $26 million annually. This will not apply
to OSEEGIB until grandfathered status is lost.
• Plans are required to provide members with a summary of benefits and coverage explanation
that meets standards developed by HHS which have not yet been completely developed.
• Plans are required to report loss ratios and make these reports available to HHS. Plans not
meeting certain loss ratios must provide premium rebates to their members.
• PPACA allocates $5 billion to be used nationwide to subsidize the cost of coverage for
retirees who are not yet Medicare eligible. OSEEGIB applied for the subsidy on June 29,
2010, the first day plans were allowed to send the application. The funds are available on
a first come first serve basis in order of filing claims. HHS has not yet provided guidance
on when or how to file the claims. More information regarding this topic can be found in
the Major Initiatives section.
• PPACA states employers must disclose the aggregate cost of benefits provided by employers
for each employee’s health insurance coverage on the employee’s annual Form W-2 which
will require increased communication between OSEEGIB and participating groups.
Oklahoma State and Education Employees Group Insurance Board
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Oklahoma
Senate Bill 0565 (2008) removed the requirement that a dependent between age 19 and age
25 be a full-time student.
Senate Bill 1168 (2008) provides that health benefit plans, including OSEEGIB, shall not
exclude otherwise allowable claims which occur in conjunction with the arrest or pretrial detention
of the policyholder.
Senate Bill 1766 (2008) allows directors of a conservation district to participate in the health
and dental plans offered by OSEEGIB.
House Bill 1055 (2009) formally creates the State Employee Health Insurance Review
Working Group.
House Bill 1170 (2009) creates the Oklahoma Information Services Act and creates a
position of Chief Information Officer for the State who shall issue a plan to transfer, coordinate and
modernize all information technology and communications systems for all state agencies.
Senate Bill 757 (2009) creates the Health Infrastructure Advisory Board that will look at the
use of electronic medical information records and health information technologies. The OSEEGIB
Chief Information Officer will serve on that Board.
Senate Bill 822 (2009) creates a legislative task force to review the state’s current health
insurance mandates and determine if any of them should be recommended for further legislative
changes.
House Bill 2363 (2010) creates a statewide voluntary buyout program for retirement-eligible
state workers. The bill requires agencies that receive reimbursements for voluntary buyouts to agree
that its number of full-time-equivalent employees shall be reduced by that number of positions for
a period of not less than 36 months.
House Bill 2437 (2010) requires all health carriers to pay an access payment of 1 percent
on all claims paid beginning from the effective date of the act until January 1, 2015. It requires
monthly payments to the Oklahoma Insurance Department on all claims paid and incurred beginning
July 1, 2010.
House Bill 2698 (2010) creates the Oklahoma Government Website Information Act,
requiring public bodies on or before January 1, 2011, to make available on Internet web sites or on
a general web site any administrative rules adopted by the public body, proposed administrative
rules, statutes affecting the body and its operations, and any statutes the public may find useful in
interacting with the body.
FINANCIAL INFORMATION
OSEEGIB’s management is responsible for establishing and maintaining an internal control
Oklahoma State and Education Employees Group Insurance Board
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structure designed to ensure that assets are protected and to provide accurate accounting data. The
internal control structure is designed to provide reasonable, but not absolute, assurance that these
objectives are met. The concept of reasonable assurance recognizes that the cost of a control should
not exceed the benefits likely to be derived. The valuation of costs and benefits requires estimates
and judgments by management.
Change in Financial Statement Presentation. During 2006 and 2007, OSEEGIB applied the
provisions of GASB Statement No. 43 (GASB 43), Financial Reporting for Postemployment Benefit
Plans Other Than Pension Plans, and presented the portion of its activity related to covered active
employees of participating employers as a public entity risk pool and the portion of its activity related
to covered retirees of participating employers as an agency fund in accordance with the guidance for
multiple-employer OPEB (other post-employment benefits) plans that are not administered as trusts.
During 2008, OSEEGIB determined its activity related to covered retirees of participating employers
does not meet the definition of an OPEB plan, and therefore is not subject to GASB 43. Additionally,
as OSEEGIB is not a cooperative group of governmental entities joining together to finance exposure
to risk, OSEEGIB is not subject to GASB Statement No. 10, Accounting and Reporting for Risk
Financing and Related Insurance Issues. OSEEGIB, as an instrumentality of the State of Oklahoma
created to administer, manage, and provide group health, dental, life and disability insurance for active
employees and retirees of state agencies, school districts and other governmental units, believes the
preferred method of accounting and reporting presentation is a special-purpose government engaged
solely in business-type activities, more specifically an insurance enterprise. Effective January 1,
2008, OSEEGIB changed its financial statement accounting and reporting presentation and reported
results in a single enterprise fund presentation and no longer included an agency fund.
Single Audit. OSEEGIB does not receive federal funding and, therefore, is not required to
undergo an annual single audit in conformity with the provisions of the Single Audit Amendments of
1996 and U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments,
and Non-Profit Organizations.
Budgeting Controls. All administrative expenses are funded from premiums. Funds needed
for administrative expenses are transferred to a Revolving Fund, which is not subject to fiscal year
limitations and is under the control of OSEEGIB. OSEEGIB maintains budgetary controls to ensure
compliance with provisions embodied in the annual budget approved by the Board of Directors.
The level of budgetary control (that is, the level at which expenditures cannot exceed the budgeted
amount) is established by function and activity. OSEEGIB maintains an encumbrance accounting
system as its primary technique for accomplishing budgetary control.
As demonstrated by the financial statements included in this report, OSEEGIB is meeting its
responsibility for sound financial management.
Proprietary Operations. OSEEGIB’s revenue from operations consists of health, dental, life,
and disability premiums remitted by each participating entity for their employees, or directly by retirees
or participants under COBRA. Also included in premium revenue are premium subsidies received
from the Centers for Medicare and Medicaid (CMS) Medicare Part D program. Other operating
revenues consist of pharmacy rebates and a risk adjustment fee collected from HMOs. Operational
expenses are primarily paid and incurred claims. The following charts illustrate enrollment, premiums
and claims broken down between active participants, pre-Medicare retirees, and Medicare retirees.
Enrollment (Covered Lives) vs. Incurred Claims
Health Program - Year Ended December 31, 2009
Exhibit 2
Enrollment Incurred Claims
Active Pre-Medicare Medicare
35,183
10,958
135,888
$84,913,764
$134,851,348
$515,264,885
Active employees comprise 75% of OSEEGIB’s primary member population and 70% of 2009
paid claims. Pre-Medicare retirees make up only 6% of OSEEGIB’s primary member population
but account for 12% of paid claims and retirees over age 65 make up 19% of OSEEGIB’s primary
member population and 18% of paid claims.
Oklahoma State and Education Employees Group Insurance Board
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$600,000,000
$100,000,000
$200,000,000
$300,000,000
$400,000,000
$500,000,000
$0
Active Pre-Medicare Medicare
583,025,749
515,264,885
506,593,185
83,511,564
54,920,205
84,913,764
134,851,348
134,500,248
140,025,545
Premiums
Paid Claims
Incurred Claims
Comparison of Premiums and Incurred Claims
Health Program - Year Ended December 31, 2009
$700,000,000
Pharmacy claims are included in total health claims. For active employees, health premiums
for 2009 were $67.8 million over incurred claims for the year, a difference of 13%. For pre-Medicare
members health premiums fall short of covering incurred claims by $30.0 million or 35%, primarily
because premiums for active employees and pre-Medicare retirees are priced at a fully blended rate.
For Medicare retirees, health premiums were $5.2 million over incurred claims for a difference of
4%.
Oklahoma State and Education Employees Group Insurance Board
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Exhibit 3
The following exhibit illustrates medical and prescription drug claims for each participant
category.
Oklahoma State and Education Employees Group Insurance Board
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Medical and Prescription Drug Paid Claims
Year Ended December 31, 2009
Medical Claims
21%
79%
25%
75%
35%
65%
Exhibit 4
Active Pre-Medicare Medicare
Prescription Drug Claims
For the active and pre-Medicare population less than one fourth of total paid claims are for
prescription drugs. For the Medicare population the majority of paid claims are for prescription
drugs.
Administrative expenses make up approximately 4% of OSEEGIB’s total expenses and 4%
of premium revenue. This compares favorably with industry averages.
Cash and Investment Management. OSEEGIB maintains minimum cash balances as required
by statute to fund released warrants. All excess cash is deposited with a custodial bank, which in
turn credits OSEEGIB’s short-term cash money market account. In addition to the money market
account, OSEEGIB has two fixed income money managers and three equity securities managers.
All invested funds are regulated by OSEEGIB’s investment policy, set by the Board of
Directors, and monitored by OSEEGIB administration. The policy speaks specifically to liquidity,
asset quality, maturity and duration of fixed income terms, and specific asset mix by statutory fund.
In addition, the policy sets benchmark expectations for each type of money manager. A more detailed
summary of OSEEGIB’s financial position and result of operations is included in Management’s
Discussion and Analysis.
OTHER INFORMATION
Independent Audit. The accounting firm of KPMG LLP has been retained to perform an
annual audit. The independent auditors’ report on the basic financial statements is included in the
financial section of this report.
Retirement of Administrator. Mr. Bill Crain, Administrator of OSEEGIB for 8 years, retired
January 1, 2010. Mr. Frank Wilson was appointed new Administrator. A list of principal officials
at January 1, 2010, is included as well as a list of principal officials at December 31, 2009.
Acknowledgments. The preparation of the comprehensive annual financial report was made
possible by the dedicated service of the entire staff of the accounting/finance department. In addition,
we wish to acknowledge the contribution made by Mr. Gary Beebe, Financial Accounting.
In closing, without the leadership and support of the governing body of OSEEGIB,
preparation of this report would not have been possible.
Respectfully submitted,
Lynne Bajema Diana O’Neal
Deputy Administrator, Finance Director of Finance
Oklahoma State and Education Employees Group Insurance Board
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Oklahoma State and Education Employees Group Insurance Board
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Executive Organizational Chart
Legislature
State of Oklahoma
Oklahoma State and Education
Employees Group Insurance Board
Board Auditor Board Legal Counsel
Agency Administrator
General Counsel
to the
Administrator
Regulatory
Affairs
Deputy
Administrator
Finance -
Administration
Human
Resources
Deputy
Administrator
Operations
Information
Technology
Finance and
Accounting
Member
Services
Health Care
Management
Policy
Research
Public
Information
Provider
Relations
Oklahoma State and Education Employees Group Insurance Board
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BOARD
Administrator
Bill Crain
Deputy Administrators
Finance Frank Wilson
Operations Paul King
Division Directors
General Counsel, Board Paul Duncan
Internal Audit Joe McCoy
General Counsel, Administrator Kathy Pendarvis
Finance and Accounting Lynne Bajema
Government Liaison Dana Webb
Human Resources Gene Krier
Information Technology Bo Reese
Health Care Management Yasmine Barve
Provider Relations Teresa South
Member Services Victoria Goodwin
Public Information Teresa Robinson
Richard N. Womack, Chairman Eugene P. Reding, Vice Chairman
Kim Holland Cody Graves
Michael Clingman Steven Mattachione
W. R. Moon V. David Miller
List of Principal Officials
December 31, 2009
BOARD
Oklahoma State and Education Employees Group Insurance Board
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Richard N. Womack, Chairman Eugene P. Reding, Vice Chairman
Kim Holland Cody Graves
Michael Clingman Steven Mattachione
W. R. Moon V. David Miller
Administrator
Frank Wilson
Deputy Administrators
Finance Lynne Bajema
Operations Paul King
Division Directors
General Counsel, Board Paul Duncan
Internal Audit Joe McCoy
General Counsel, Administrator Kathy Pendarvis
Finance and Accounting Diana O’Neal
Government Liaison Dana Webb
Human Resources Gene Krier
Information Technology Bo Reese
Health Care Management Yasmine Barve
Provider Relations Teresa South
Member Services Victoria Goodwin
Public Information Teresa Robinson
List of Principal Officials
January 1, 2010
Section
Financial
KPMG LLP
210 Park Avenue, Suite 2850
Oklahoma City, OK 73102-5683
KPMG LLP, a U.S. limited liability partnership, is the U.S.
member firm of KPMG International, a Swiss cooperative.
Independent Auditors’ Report
Members of the Board
Oklahoma State and Education Employees
Group Insurance Board
Oklahoma City, Oklahoma:
We have audited the accompanying balance sheets of the Oklahoma State and Education Employees Group
Insurance Board (OSEEGIB), a component unit of the State of Oklahoma, as of December 31, 2009 and
2008, and the related statements of revenues, expenses and changes in fund equity, and cash flows for the
years then ended. These financial statements are the responsibility of OSEEGIB’s management. Our
responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of
America and the standards applicable to financial audits contained in Government Auditing Standards,
issued by the Comptroller General of the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of OSEEGIB’s internal control over financial reporting. Accordingly, we
express no such opinion. An audit also includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
financial position of the Oklahoma State and Education Employees Group Insurance Board as of
December 31, 2009 and 2008, and the changes in its financial position and its cash flows for the years then
ended in conformity with U.S. generally accepted accounting principles.
As discussed in note 2(n) to the financial statements, OSEEGIB changed its method of financial statement
presentation during 2008.
In accordance with Government Auditing Standards, we have also issued our report dated April 29, 2010,
on our consideration of OSEEGIB’s internal control over financial reporting and our tests of its compliance
with certain provisions of laws, regulations, contracts, and other matters. The purpose of that report is to
describe the scope of our testing of internal control over financial reporting and compliance and the results
of that testing, and not to provide an opinion on the internal control over financial reporting or on
compliance. That report is an integral part of an audit performed in accordance with Government Auditing
Standards and should be considered in assessing the results of our audits.
The accompanying management’s discussion and analysis on pages 19 through 26 is not a required part
of the basic financial statements, but is supplementary information required by U.S. generally accepted
accounting principles. We have applied certain limited procedures, which consisted principally of inquiries
of management regarding the methods of measurement and presentation of the required supplementary
information. However, we did not audit the information and express no opinion on it.
April 29, 2010
18
19
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Management’s Discussion and Analysis
December 31, 2009 and 2008
(Continued)
Overview of the Financial Statements
The Oklahoma State and Education Employees’ Group Insurance Board’s (OSEEGIB) basic financial statements
are prepared on the basis of accounting principles generally accepted in the United States of America for
governmental entities and insurance enterprises where applicable. The primary purpose of OSEEGIB is to
provide group health, dental, life, and disability insurance for employees of state agencies, school districts, and
other governmental units as set forth in Title 74 of the Oklahoma Statutes. OSEEGIB is a component unit of the
State of Oklahoma.
During 2006 and 2007, OSEEGIB applied the provisions of GASB Statement No. 43 (GASB 43), Financial
Reporting for Postemployment Benefit Plans Other Than Pension Plans, and presented the portion of its activity
related to covered active employees of participating employers as a public entity risk pool and the portion of its
activity related to covered retirees of participating employers as an agency fund in accordance with the guidance
for multiple-employer OPEB (other post-employment benefits) plans that are not administered as trusts. During
2008, OSEEGIB determined its activity related to covered retirees of participating employers does not meet the
definition of an OPEB plan and, therefore, is not subject to GASB 43. Additionally, as OSEEGIB is not a
cooperative group of governmental entities joining together to finance exposure to risk, OSEEGIB determined it
is not subject to the guidance for public entity risk pools in GASB Statement No. 10, Accounting and Financial
Reporting for Risk Financing and Related Insurance Issues. OSEEGIB, as an instrumentality of the State of
Oklahoma created to administer, manage, and provide group health, dental, life, and disability insurance for
active employees and retirees of state agencies, school districts, and other governmental units, believes the
preferred method of accounting and reporting presentation is a special-purpose government engaged solely in
business-type activities, more specifically an insurance enterprise. Effective January 1, 2008, OSEEGIB changed
its financial statement accounting and reporting presentation and reported results in a single enterprise fund
presentation and no longer included an agency fund. Additionally, as a result of the change in accounting and
reporting presentation, disability reserves of approximately $13,504,000 were required to be recognized and
policy maintenance costs of approximately $2,897,000 were required to be included in the premium deficiency
reserve decreasing beginning fund equity for 2008.
The total effect of the change in accounting and reporting presentation on fund equity on January 1, 2008 is as
follows:
As originally Effect of
reported As adjusted change
Fund equity, January 1, 2008 $ 187,891,608 171,490,197 16,401,411
The 2007 financial statements included in the financial highlights section below have been adjusted to reflect the
change in accounting and reporting presentation for comparability purposes.
20
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Management’s Discussion and Analysis
December 31, 2009 and 2008
(Continued)
The three financial statements presented within the basic financial statements are as follows:
Balance Sheets – This statement presents information reflecting OSEEGIB’s assets, liabilities, and fund equity.
Fund equity represents the amount of total assets less total liabilities. The balance sheet is classified as to current
and noncurrent assets and liabilities. For purposes of the financial statements, current assets and liabilities are
those assets and liabilities with immediate liquidity or which are collectible or becoming due within twelve
months of the statement date. OSEEGIB’s investment balances are considered current assets, as OSEEGIB has
historically experienced a high portfolio turnover rate.
Statements of Revenues, Expenses, and Changes in Fund Equity – This statement reflects OSEEGIB’s
operating revenues and expenses, as well as nonoperating revenues during the year. The major source of
operating revenue is premium income and the major sources of operating expenses are health, dental, life, and
disability benefits. The change in fund equity for an enterprise fund is similar to net profit or loss for a private
sector insurance company.
Statements of Cash Flows – The statements of cash flows are presented on the direct method of reporting which
reflects cash flows from operating, capital and related financing, and investing activities. Cash collections and
payments are reflected in this statement to arrive at the net increase or decrease in cash for the fiscal year.
21
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Management’s Discussion and Analysis
December 31, 2009 and 2008
(Continued)
Financial Highlights
The management of the Oklahoma State and Education Employees’ Group Insurance Board (OSEEGIB) offers
readers of OSEEGIB’s financial statements this narrative overview and analysis of the financial activities of the
entity for the years ended December 31, 2009, 2008, and 2007.
December 31 2009 v. 2008 Change
2009 2008 2007 Amount Percentage
Cash and investments $ 259,205,958 217,007,595 288,440,918 42,198,363 19.4%
Premiums receivable, net 30,454,967 24,966,549 27,033,170 5,488,418 22.0
Other current assets 13,809,260 8,091,122 13,816,166 5,718,138 70.7
Total current assets 303,470,185 250,065,266 329,290,254 53,404,919 21.4
Office equipment, net 609,442 710,218 856,296 (100,776) (14.2)
Total assets $ 304,079,627 250,775,484 330,146,550 53,304,143 21.3%
Policy and contract claim reserves $ 107,617,000 98,479,000 88,584,000 9,138,000 9.3%
Disability reserves (current only) 2,846,000 2,747,000 2,663,032 99,000 3.6
Premium deficiency reserves — 11,915,000 24,627,000 (11,915,000) (100.0)
Other current liabilities 22,608,838 16,638,908 31,940,942 5,969,930 35.9
Total current liabilities 133,071,838 129,779,908 147,814,974 3,291,930 2.5
Total noncurrent liabilities 10,963,000 10,552,000 10,841,379 411,000 3.9
Total liabilities 144,034,838 140,331,908 158,656,353 3,702,930 2.6
Invested in capital assets 609,442 710,218 856,296 (100,776) (14.2)
Unrestricted fund equity 159,435,347 109,733,358 170,633,901 49,701,989 45.3
Total fund equity 160,044,789 110,443,576 171,490,197 49,601,213 44.9
Total liabilities
and fund equity $ 304,079,627 250,775,484 330,146,550 53,304,143 21.3%
22
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Management’s Discussion and Analysis
December 31, 2009 and 2008
(Continued)
Year ended December 31, 2009 v. 2008 Change
2009 2008 2007 Amount Percentage
Premium revenue $ 861,781,691 761,944,652 798,961,929 99,837,039 13.1%
Other operating revenues 14,729,837 14,382,892 15,136,247 346,945 2.4
Total operating revenues 876,511,528 776,327,544 814,098,176 100,183,984 12.9
Benefits expense 810,727,132 779,338,684 749,970,728 31,388,448 4.0
Change in claim reserves 9,648,000 9,689,589 3,166,412 (41,589) (0.4)
Change in premium deficiency reserves (11,915,000) (12,712,000) 24,627,000 797,000 (6.3)
Administrative and claims processing
expense 38,423,432 38,717,310 41,222,380 (293,878) (0.8)
Total operating expenses 846,883,564 815,033,583 818,986,520 31,849,981 3.9
Operating income (loss) 29,627,964 (38,706,039) (4,888,344) 68,334,003 (176.5)
Net investment income (loss) 19,973,249 (22,340,582) 13,590,378 42,313,831 (189.4)
Change in fund equity 49,601,213 (61,046,621) 8,702,034 110,647,834 (181.3)
Fund equity, beginning of year,
as adjusted 110,443,576 171,490,197 162,788,163 (61,046,621) (35.6)
Fund equity, end of year $ 160,044,789 110,443,576 171,490,197 49,601,213 44.9%
OSEEGIB’s total assets for the year ended December 31, 2009 increased by approximately 21% from the
previous year after a decrease of 24% during 2008. Cash and investments increased by $42.2 million or 19%
during 2009 due to favorable claims experience and a rebounding investment market after decreasing by
$71.4 million or 25% during 2008’s year of high claims experience combined with a drastic downturn in the
investment market.
During 2009, OSEEGIB earned approximately $6.2 million in interest and dividend income. OSEEGIB realized
investment losses of $2.9 million and experienced $17.1 million in unrealized gains. Investment expenses were
approximately $438,000, resulting in a total net gain on investments of $20.0 million. In 2008, OSEEGIB earned
approximately $8.2 million in interest and dividend income, experienced $156,000 in realized losses and
$29.8 million in unrealized losses, and paid $581,000 in investment expenses for a net investment loss of
$22.3 million. OSEEGIB’s investment allocation at December 31, 2009 is comprised of approximately 53%
fixed income securities, 24% equities, and 23% cash equivalents compared to approximately 59% fixed income
securities, 23% equities, and 18% cash equivalents at December 31, 2008. During 2009, OSEEGIB did not
convert any investments to operating cash. During 2008, OSEEGIB liquidated $36 million of fixed income
securities and $9 million of equity investments to replenish operating cash.
23
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Management’s Discussion and Analysis
December 31, 2009 and 2008
(Continued)
Premiums receivable at December 31, 2009 increased by $5.5 million over December 31, 2008, primarily due to
an increase in the monthly premium for 2009. At December 31, 2008, premiums receivable had decreased by
$2.1 million due to a decrease in the number of active members. The decrease was due primarily to the
disenrollment of a major university. The increase in other current assets in 2009 of $5.7 million is primarily due
to a $3.2 million increase in the receivable for pharmacy rebates as well as an almost $2.0 million increase in a
receivable for pending investment sales. In contrast, the decrease in other current assets in 2008 of $5.7 million is
primarily due to a $6.8 million decrease in the receivable for unsettled investment trades.
Total liabilities as of December 31, 2009 increased $3.7 million from December 31, 2008. Four months after the
end of the year, OSEEGIB’s actuaries project the results of the current fiscal year based upon updated trend
information as compared to the assumptions used when the rates were set in August of the previous year. If, at
that time, it appears that claims experience will exceed premiums received, accounting principles require a
premium deficiency reserve liability to be booked on the previous year’s final Balance Sheet and the reserve is
amortized as a contra-expense in the current year. There is no premium deficiency reserve liability at
December 31, 2009. At December 31, 2008, the premium deficiency reserve liability was $11.9 million.
Total claim reserves, including noncurrent disability reserves, at December 31, 2009, were $9.6 million more
than reserves at December 31, 2008 due to an overall increase in incurred claims in 2009. At December 31, 2008,
total claim reserves including noncurrent disability reserves were $9.7 million more than reserves at
December 31, 2007. OSEEGIB contracted with a new Third Party Administrator (TPA) to pay health, dental, and
life claims effective January 1, 2009. The TPA under contract for 2008 stopped paying claims on December 19,
2008, reducing paid claims for December and increasing claim reserves at December 31, 2008.
Other current liabilities increased $6 million from December 31, 2008 due in part to a $1.1 million increase in the
payable to a TPA as well as a $2 million increase in the payable for unsettled investment purchases. Other
current liabilities at December 31, 2008 decreased $15.3 million from December 31, 2007 primarily due to a
$10.4 million decrease in payables for unsettled investment purchases, as well as a $2.7 million decrease in a
non-recurring settlement liability.
OSEEGIB saw an increase in net premium revenue for 2009 of approximately $99.8 million, primarily due to the
rate increases necessary for 2009. In addition, payments from the Centers for Medicare and Medicaid Services
(CMS), which is included in premium revenue, increased by $1.4 million in 2009. In contrast, for 2008
OSEEGIB saw a decrease in premium revenue of approximately $37.0 million, primarily due to the reduction in
participation as well as a decrease in the dependent rates in the active and pre-Medicare categories. Payments
from CMS during 2008 decreased by $2.9 million from 2007 due to a change in CMS’ payment method. For the
year ended December 31, 2009, OSEEGIB earned approximately $14.7 million in other operating income, which
consisted of $1.7 million in risk adjustment fee income and $13 million in pharmacy rebates. For the year ended
December 31, 2008, OSEEGIB earned approximately $14.4 million in other operating income, which consisted
of $2.1 million in risk adjustment fee income and $12.1 million in pharmacy rebates.
24
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Management’s Discussion and Analysis
December 31, 2009 and 2008
(Continued)
Benefits expense, including changes in claim reserves, comprised 96% of OSEEGIB’s total expenses for 2009
and 95% of total expenses in 2008. Changes in premium deficiency reserves are not considered in the
calculation. Total benefits expense for 2009, including changes in reserves, increased by $31.3 million, or 4%
over the prior year. For the year ended December 31, 2008, total benefits expense, including changes in reserves,
increased by $35.9 million, or 5% over the year ended December 31, 2007.
Health and dental claim costs increased by approximately $27.1 million, or 4%, over the prior year primarily due
to increases in incurred claims for pharmacy benefits. The actual increase varied favorably from the 9% increase
assumed by the actuaries when setting 2009 rates. For the year ended December 31, 2008, health and dental
claim costs increased by approximately $34.1 million or 5% over the year ended December 31, 2007. The
expense for life benefits increased by approximately $2.8 million or 13% during 2009. In 2008, life benefits
expense increased by approximately $5.7 million or 37% over the expense reported for 2007.
Disability benefits for 2009 increased by $1.6 million or 7% after decreasing by $3.9 million or 65% in 2008.
The sharp decrease in 2008 was primarily because disability reserves increased by $3.2 million in 2007 and have
remained relatively stable since.
Administrative expenses decreased slightly by $300,000, or 0.8%, in 2009. In 2008, administrative expenses
decreased by $2.5 million, or 6%, primarily due to a decrease in the administrative fee assessed by the Oklahoma
State Employee Benefits Council. The fee was changed from 2% for 2007 to 1.25% for 2008, resulting in a
savings to OSEEGIB of $2.0 million. Administrative expenses made up 4% of OSEEGIB’s total expenses in
2009 and 5% of total expenses in 2008.
OSEEGIB experienced an increase in fund equity of approximately $49.6 million, or 45%, for the year ended
December 31, 2009. For 2008, there was a decrease in fund equity of approximately $61.0 million, or 36%.
The Health and Dental program experienced an increase in fund equity of approximately $49.0 million, or 71%,
for the year ended December 31, 2009 due to the increase in premiums and improvement in the investment
markets. The premium rates adopted for the Health and Dental Fund were based on assumptions that provided for
no increase or decrease in fund equity. During 2008, the Health and Dental program experienced a decrease in
fund equity of approximately $52.3 million, or 43%. OSEEGIB’s governing board made a decision to subsidize
monthly health premiums for 2008 and experienced a drastic downturn in the investment market.
The Life program experienced a decrease in fund equity of approximately $2.4 million or 12% in 2009 and
$4.5 million or 18% in 2008. The premium rates adopted for the Life program were based on assumptions that
provided for no increase or decrease in fund equity.
The Disability program experienced an increase in fund equity of $3.0 million or 14% in 2009 while in 2008 the
Disability program experienced a decrease in fund equity of $4.3 million or 16%. The premium rates adopted for
the Disability program were based on assumptions that provided for no increase or decrease in fund equity.
25
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Management’s Discussion and Analysis
December 31, 2009 and 2008
Economic Conditions
The insurance industry monitors healthcare costs by establishing a percentage of cost increases known as “trend”.
According to the Segal Health Plan Cost Trend Survey, trend is the forecast change in health plans’ per-capita
claims cost determined by insurance carriers, managed care organizations, and third-party administrators. Many
factors influence trend, including:
 Price inflation,
 Deductibles and copayments,
 Cost-shifting,
 Utilization increases due to aging, product promotion and improved diagnostic services,
 The availability and use of more expensive drug therapies,
 Government mandated benefits and other legislative changes, and
 Technological changes.
For 2009, the overall nationwide health trend for employer sponsored plans, according to AON Consulting,
OSEEGIB’s actuarial firm, was 10.9% for PPO plans with pharmacy benefits. The national trend for Medicare
supplement plans was 7.6% for 2009. Historically, OSEEGIB’s cost trends have tracked below national averages.
As a large self-funded plan, OSEEGIB’s cost trends are cyclical in nature, and can vary during a given plan year.
OSEEGIB experienced an average medical trend of 8-9% during 2008 and 2009 for active members and retirees
under age 65. OSEEGIB’s trend for the Medicare supplement plan was a decrease of 1.0%. These figures
measured OSEEGIB’s paid claims and did not adjust for plan design or provider contracting changes during the
measurement period.
Since premium rates are set in August, the rate setting process applies trends experienced through April. The
medical trend applied by OSEEGIB’s actuaries for calculating 2009 rates was 9.5% for active employees and
pre-Medicare retirees and 7.0% for Medicare retirees. The prescription drug trend used for setting 2009 rates was
7.5% for active employees and pre-Medicare retirees and 7.5% for Medicare retirees. The dental trend used for
setting 2009 rates was 6.0%. The medical trend applied by OSEEGIB���s actuaries for calculating 2008 rates was
8.0% for active employees and pre-Medicare retirees and 7.0% for Medicare retirees. The prescription drug trend
used for setting 2008 rates was 7.5% for active employees, pre-Medicare retirees, and Medicare retirees. The
dental trend used for setting 2008 rates was 7.2%.
OSEEGIB’s investment portfolio rebounded in 2009 after a dismal year in 2008. The return on investment (ROI)
assumed by OSEEGIB’s actuaries in setting premium rates for 2009 was a combined return of 4.4% and the
actual rate of return was 8.5%. In contrast, OSEEGIB’s investment holdings suffered in 2008 with the global
economic downturn after experiencing five years of positive returns. Relative to the market decline overall,
OSEEGIB’s investment losses were minimized due to OSEEGIB’s conservative investment policy. The ROI
assumed by OSEEGIB’s actuaries in setting premium rates for 2008 was a combined return of 4% and the actual
ROI for 2008, after large market losses in the final quarter, was a 10% loss.
26
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Management’s Discussion and Analysis
December 31, 2009 and 2008
The Patient Protection and Affordable Care Act was signed by President Obama on March 23, 2010. This Act
includes wide-sweeping changes to many facets of the nation’s healthcare system. OSEEGIB is in the process of
evaluating the effect this massive piece of legislation has on operations and benefits.
27
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Balance Sheets
December 31, 2009 and 2008
Assets 2009 2008
Current assets:
Cash and cash equivalents $ 83,857,770 63,240,471
Investments 175,348,188 153,767,124
Receivables:
Interest and dividends receivable 383,621 388,354
Unsettled investment sales 3,833,553 887,140
Premiums, net of allowance of $800,000 and $310,000 at
December 31, 2009 and 2008, respectively 30,454,967 24,966,549
Pharmacy rebate 8,594,904 5,279,700
Other, net 997,182 1,535,928
Total current assets 303,470,185 250,065,266
Noncurrent assets:
Office equipment 4,163,900 4,438,752
Less accumulated depreciation (3,554,458) (3,728,534)
Office equipment, net 609,442 710,218
Total assets $ 304,079,627 250,775,484
Liabilities
Current liabilities:
Health and dental reserves $ 102,804,000 93,771,000
Life reserves 4,813,000 4,708,000
Disability reserves 2,846,000 2,747,000
Premium deficiency reserve — 11,915,000
Premiums due to health maintenance organizations and other insurers 9,246,824 8,705,679
Payable for investment purchases 3,878,548 836,471
Other accrued liabilities 9,483,466 7,096,758
Total current liabilities 133,071,838 129,779,908
Noncurrent liabilities:
Disability reserves 10,963,000 10,552,000
Total liabilities 144,034,838 140,331,908
Fund Equity
Invested in capital assets 609,442 710,218
Unrestricted 159,435,347 109,733,358
Total fund equity 160,044,789 110,443,576
Total liabilities and fund equity $ 304,079,627 250,775,484
See accompanying notes to basic financial statements.
28
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Statements of Revenues, Expenses and Changes in Fund Equity
Years ended December 31, 2009 and 2008
2009 2008
Operating revenues:
Premium revenue $ 861,781,691 761,944,652
Other operating revenues 14,729,837 14,382,892
Total operating revenues 876,511,528 776,327,544
Operating expenses:
Benefits expense 810,727,132 779,338,684
Change in health and dental reserves 9,033,000 8,974,000
Change in life reserves 105,000 921,000
Change in disability reserves 510,000 (205,411)
Change in premium deficiency reserve (11,915,000) (12,712,000)
Administrative and claim processing 38,423,432 38,717,310
Total operating expenses 846,883,564 815,033,583
Operating income (loss) 29,627,964 (38,706,039)
Nonoperating revenues:
Net investment income (loss) 19,973,249 (22,340,582)
Change in fund equity 49,601,213 (61,046,621)
Fund equity, beginning of year, as adjusted on January 1, 2008
(note 2(n)) 110,443,576 171,490,197
Fund equity, end of year $ 160,044,789 110,443,576
See accompanying notes to basic financial statements.
29
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Statements of Cash Flows
Years ended December 31, 2009 and 2008
2009 2008
Cash flows from operating activities:
Premiums collected $ 830,462,048 739,916,245
Premiums collected on behalf of health maintenance organizations
and other insurers 120,025,897 113,263,794
Payments collected from CMS 25,172,614 22,860,814
Risk adjustment premium collected 1,708,628 2,150,474
Pharmacy rebates collected 9,979,237 11,226,526
Benefits paid (810,727,132) (779,338,684)
Premiums paid to health maintenance organizations and other insurers (118,826,141) (113,273,374)
Payments to employees for services (10,181,591) (10,168,964)
Payments to suppliers for goods and services (25,622,234) (30,439,923)
Other operating cash received (paid) 265,515 (296,940)
Net cash provided by (used in) operating activities 22,256,841 (44,100,032)
Cash flows from capital and related financing activities:
Acquisition of office equipment (132,124) (169,559)
Net cash used in capital and related financing activities (132,124) (169,559)
Cash flows from investing activities:
Purchases of investments (194,426,040) (129,574,575)
Proceeds from sales and maturities of investments 187,166,476 167,634,080
Investment income received 5,752,146 7,810,264
Net cash (used in) provided by investing activities (1,507,418) 45,869,769
Net increase in cash and cash equivalents 20,617,299 1,600,178
Cash and cash equivalents, beginning of year 63,240,471 61,640,293
Cash and cash equivalents, end of year $ 83,857,770 63,240,471
Reconciliation of operating income (loss) to net cash provided by (used in)
operating activities:
Operating income (loss) $ 29,627,964 (38,706,039)
Adjustments to reconcile operating income (loss) to net cash provided by
(used in) operating activities:
Depreciation 232,900 315,637
Change in operating assets and liabilities:
Premium receivable (5,488,418) 2,066,621
Other receivables (2,776,458) (1,302,832)
Claim reserves 9,138,000 9,895,000
Disability reserves 510,000 (205,411)
Premium deficiency reserves (11,915,000) (12,712,000)
Premiums due to health maintenance organizations and other insurers 541,145 (288,056)
Other liabilities 2,386,708 (3,162,952)
Total adjustments (7,371,123) (5,393,993)
Net cash provided by (used in) operating activities $ 22,256,841 (44,100,032)
See accompanying notes to basic financial statements.
30
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Notes to Basic Financial Statements
December 31, 2009 and 2008
(Continued)
(1) Description of OSEEGIB
The Oklahoma State and Education Employees Group Insurance Board (OSEEGIB) is a special purpose
state and local government engaged solely in business-type activities. OSEEGIB is a legal trust which
administers, manages and provides group health, dental, life, and disability insurance for active employees
and retirees of state agencies, school districts, and other governmental units of the State of Oklahoma.
OSEEGIB is self-insured and is financed through premiums collected from employers and employees.
OSEEGIB provides insurance solely to eligible employees, dependents, and retirees. OSEEGIB is a
component unit of State of Oklahoma (the State).
The following brief description of OSEEGIB is provided for general information purposes only.
Participants should refer to Title 74 of the Oklahoma Statutes, Sections 1301 et seq. as amended, for more
complete information.
In accordance with Title 74, OSEEGIB maintains three separate programs, the Health and Dental program,
the Life program, and the Disability program. There is no statutory restriction that would prevent assets
accumulated in one program from paying benefits due from another program.
The eight-member board which administers OSEEGIB (the Board) is comprised of two members
appointed by the governor, two members appointed by the speaker of the House of Representatives, two
members appointed by the president pro tempore of the Senate, the commissioner of the Oklahoma
Insurance Department and the director of the Office of State Finance. The Board has a fiduciary
responsibility to manage the funds and invest the assets of OSEEGIB. This moral and legal obligation
establishes a trustee relationship whereby OSEEGIB’s funds are held for the ultimate benefit of those who
obtain insurance from OSEEGIB.
(a) General
In 1968, OSEEGIB was formed by the State Legislature to provide group health, dental, and life
benefits to participants of the Oklahoma Public Employees Retirement System (OPERS) and active
employees of the State. Subsequently, other groups became eligible for participation, including
persons covered under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA),
survivors and certain local government employees. COBRA allows temporary continuance of
insurance coverage under certain circumstances. Survivors are individuals who were covered eligible
dependents of a participant in OSEEGIB at the time of the participant’s death. OSEEGIB was
created by the State Legislature and could be terminated by the same body.
In 1978, OSEEGIB became self-insured. Beginning in 1985, participants were given the option of
electing health coverage from certain health maintenance organizations (HMOs). Plans similar to
HMOs provide dental coverage for those participants who elect to participate in them (DMOs). In
1986, the State added a self-insured disability program to OSEEGIB.
31
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Notes to Basic Financial Statements
December 31, 2009 and 2008
(Continued)
In 1989, participants of the Teachers’ Retirement System of Oklahoma (TRS) and active employees
of school districts became eligible to enroll in OSEEGIB (educational participants). House Bill
No. 1731, which provided TRS participants the option to enroll in OSEEGIB, required the TRS to
transfer $39,600,000 to OSEEGIB. The educational participants receive the same health and dental
coverage options provided to state and local governmental participants. Life coverage was made
available to active educational participants beginning July 1, 1991. Disability coverage is not
available to educational participants.
Effective July 1, 1993, the Oklahoma State Employee Benefit Council (EBC) began contracting with
HMOs and DMOs on behalf of state employees to provide health and dental coverage for those
participants who elect such coverage.
Effective January 1, 2006, OSEEGIB became a Medicare Part D Prescription Drug Plan pursuant to
the Medicare Prescription Drug Improvement and Modernization Act of 2003.
(b) Premiums and Participants
The health, dental, life, and disability benefits for governmental participants are funded by monthly
premiums paid by the State, local governmental units, OPERS, and individuals. The health, dental,
and life benefits for educational participants are funded by monthly premiums paid by school
districts, the TRS, and individuals. A participant may extend coverage to dependents for an
additional monthly premium based on the coverage requested. Premiums for active state employees
and their dependents are collected by EBC and remitted to OSEEGIB or other insurer elected by the
employee.
Premiums remitted to OSEEGIB on behalf of active state employees and their dependents for the
years ended December 31, 2009 and 2008 are reported gross of a fee retained by EBC, which is
equal to 1.25% of premiums. This fee, which was approximately $3,062,000 and $2,429,000 for the
years ended December 31, 2009 and 2008, respectively, is included in administrative expenses in the
statements of revenues, expenses and changes in fund equity. For the years ended December 31,
2009 and 2008, premiums for local government, education, and inactive participants who have
elected an HMO for health coverage or DMO for dental coverage are collected by OSEEGIB and
remitted to the HMO or DMO carrier net of a fee retained by OSEEGIB of 1% of premiums. This
fee, which was approximately $1,191,000 and $1,122,000 for the years ended December 31, 2009
and 2008, respectively, is included as an offset to administrative expenses in the statements of
revenues, expenses and changes in fund equity. The premium related to HMOs, DMOs, and vision
plans was approximately $119,367,000 and $112,985,000 for 2009 and 2008, respectively, and, as
OSEEGIB only acts in an agency capacity, the premiums collected on behalf of HMOs, DMOs, and
vision plans is not reflected in the statements of revenues, expenses and changes in fund equity.
Pursuant to the authority granted by Oklahoma Statute, the Board has the authority to establish and
change premium rates for the members, employers, and other contributing entities each year. An
outside consultant advises the Board regarding changes in premium rates. If premium rates are
changed, they generally become effective at the beginning of the next calendar year. Each HMO and
DMO determines its own premium rates.
32
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Notes to Basic Financial Statements
December 31, 2009 and 2008
(Continued)
OSEEGIB participants are not subject to supplemental assessment in the event of a premium
deficiency. At the time of premium payment, the risk of loss due to incurred benefit costs is
transferred from the participant to OSEEGIB. If the assets of OSEEGIB were to be exhausted,
participants would not be responsible for OSEEGIB’s liabilities.
At December 31, 2009, OSEEGIB provided health coverage to 133 state agency divisions with
approximately 24,000 primary participants (not including dependents), 616 school districts with
approximately 54,000 primary participants, 303 local government entities with approximately
9,000 primary participants, and 33 other groups, which include the governmental and educational
retirement systems, COBRA, and survivors, with approximately 39,000 primary participants.
Approximately 57,000 dependents participated in OSEEGIB as well. In addition, OSEEGIB
collected and remitted premiums for approximately 31,000 primary participants and
23,000 dependents who were covered by HMOs. These counts are provided for health coverage only.
At December 31, 2008, OSEEGIB provided health coverage to 134 state agency divisions with
approximately 24,000 primary participants (not including dependents), 614 school districts with
approximately 52,000 primary participants, 315 local government entities with approximately
9,000 primary participants, and 32 other groups, which include the governmental and educational
retirement systems, COBRA, and survivors, with approximately 39,000 primary participants.
Approximately 57,000 dependents participated in OSEEGIB as well. In addition, OSEEGIB
collected and remitted premiums for approximately 30,000 primary participants and
22,000 dependents who were covered by HMOs. These counts are provided for health coverage only.
All state agencies in Oklahoma are required to offer to their active employees the coverage selections
offered by EBC. All eligible education or local government entities may elect to participate in
OSEEGIB. Any education entity or local government entity which elects to withdraw from offering
OSEEGIB as an insurance option may do so with 30 days written notice and must withdraw both its
active and inactive participants.
(c) Benefits
A provider network arrangement is available for health and dental benefits. According to this
arrangement, network providers agree to accept amounts for covered services that do not exceed the
charges allowed by OSEEGIB. Therefore, the network provider can only expect to receive payment
from the participant for the charges allowed by the network agreement.
HealthChoice offers a high option and a basic option health benefit plan for non-Medicare
participants. A member who elects the high option plan is responsible for a $25 copayment and no
deductible for office visits and preventive care services when using network providers. The same
services when using nonnetwork providers are reimbursed at 50% after the member meets a $500
calendar year deductible. For other services, network provider and nonnetwork provider benefits are
generally reimbursed at 80% and 50%, respectively, after the appropriate deductibles of $500
($1,500 per family). OSEEGIB reimburses allowed charges at 100% once the member has reached
$2,800 and $3,300 per member out-of-pocket maximum for network providers and nonnetwork
providers, respectively.
33
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Notes to Basic Financial Statements
December 31, 2009 and 2008
(Continued)
The basic option plan pays 100% of the first $500 of allowed charges for covered medical services.
The member pays 100% of the next $500 ($1,000 per family) of allowed charges. The member and
OSEEGIB each pay 50% of the next $10,000 of allowed charges ($20,000 per family). OSEEGIB
reimburses allowed charges at 100% once the member has reached the out-of-pocket maximum of
$5,500 ($11,000 per family).
In addition, for both plans, when using non-network providers, the member is responsible for the
excess of billed charges over allowed charges.
A HealthChoice USA option is offered to active participants who work outside Oklahoma and
Arkansas for more than 90 consecutive days and to non-Medicare retired participants who live
outside those two states. These members have the same benefits as the HealthChoice high option, but
they access a nationwide provider network.
Pharmacy benefits are the same for the high option and the basic option plans. Medications are
categorized as either preferred or nonpreferred. When purchasing preferred medications from a
network provider, the member is responsible for a copayment of up to $25 for medications costing
$100 or less and up to $50 for medications costing more than $100. The maximum copay doubles for
nonpreferred medications. In addition, there is a $2,500 per person annual out-of-pocket maximum
for preferred medications. There is no out-of-pocket maximum for nonpreferred medications. For
nonnetwork providers, the member is responsible for a copay of up to $75 for preferred medications
and up to $125 for nonpreferred medications plus a dispensing fee. There is a lifetime maximum
pharmacy benefit of $2,000,000 per covered person.
Allowed expenses for dental benefits are reimbursed at a percentage ranging from 60% to 100%,
based on the class of the allowed expense, when using network providers. The same services when
using a nonnetwork provider are reimbursed at a percentage ranging from 50% to 100%. There is a
$25 deductible ($75 per family) when using either network or nonnetwork providers. There is a
calendar year maximum dental benefit of $2,000 per covered person.
Basic life benefits of $20,000 are provided to active state, education, and local government
employees. In addition to the basic life benefit of $20,000, participants may elect additional coverage
in increments of $20,000 up to the lesser of $300,000 or five times the participant’s salary.
Additional dependent life coverage is also available under three separate plans. The low option plan
offers dependent life coverage of $6,000 for spouses, $3,000 for children, and $1,000 for children
less than six months of age. The standard option plan offers dependent life coverage of $10,000 for
spouses, $5,000 for children, and $1,000 for children less than six months of age. The premier option
offers dependent life coverage of $20,000 for spouses, $10,000 for children, and $1,000 for children
less than six months of age.
34
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Notes to Basic Financial Statements
December 31, 2009 and 2008
(Continued)
Retirees may elect to retain the full coverage for basic life benefits held at the time of termination of
employment. Coverage thereafter may be decreased in $5,000 increments to a minimum of $5,000 or
totally terminated. Prior to July 1, 2002, no more than $15,000 of basic life insurance could be
retained after termination of employment. The retiree may retain dependent life coverage in force on
eligible dependents in $500 increments.
Disability benefits are based on the length of employment, base salary limited by a maximum
allowable salary and length of disability. There is a 30-day qualifying period for short-term
disability. Long-term disability becomes effective 180 days after disablement. Income from other
sources is used to reduce the benefit amount. The duration of the long-term benefit is determined
based upon the age of the participant at disablement and length of employment.
A high option and low option Medicare supplement benefit plan is available to those retired
participants and their dependents who are eligible to enroll in Medicare, where Medicare is the
primary payor. This coverage provides for reimbursement of Medicare-eligible expenses which may
not be fully covered by or which exceed the amount allowed by Medicare. Medicare Part A expenses
are generally reimbursed at 100% of eligible Medicare expenses not reimbursed by Medicare. The
Medicare Part A deductible is also fully reimbursed by OSEEGIB. Medicare Part B expenses are
generally reimbursed at 20% of eligible Medicare expenses not reimbursed by Medicare.
OSEEGIB has adopted Plan “J” for medical benefits for both the high option and low option plans in
accordance with the National Association of Insurance Commissioners’ schedule of Medicare
supplement plans, with the addition of a pharmacy prescription program, preventive care benefits,
out-of-country benefits and an at-home recovery benefit.
Pharmacy benefits for the high option Medicare supplement plan are the same as for the
HealthChoice high option plan, with a few minor differences in the formulary. The low option
Medicare supplement plan is modeled after the Center for Medicare and Medicaid Services (CMS)
standard Part D plan design. Once a participant reaches catastrophic coverage, OSEEGIB pays 100%
of the pharmacy cost rather than 95% per CMS’ standard Part D plan design.
Health benefits and dental benefits are provided directly by the HMOs and DMOs for all participants
who elect such coverage. For each participant who elects HMO or DMO coverage, excluding active
state employees, OSEEGIB collects and pays the premiums to each HMO or DMO carrier. For each
active state employee who elects HMO or DMO coverage, EBC collects and pays the premiums to
each HMO or DMO carrier. The amounts paid by OSEEGIB to each HMO or DMO are in
accordance with their respective contracts. Benefits are the responsibility of each HMO or DMO
carrier and are subject to the provisions defined in their insurance policies. OSEEGIB has no liability
for health benefits or dental benefits of participants who elect HMO or DMO coverage; therefore,
activity related to HMO, DMO, and vision benefits are not reflected in the basic financial statements
of OSEEGIB.
35
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Notes to Basic Financial Statements
December 31, 2009 and 2008
(Continued)
All benefits for OSEEGIB are processed and paid by third-party administrators (TPAs). The fees
incurred by OSEEGIB for services performed by the TPAs totaled approximately $16,400,000 and
$18,900,000 for the years ended December 31, 2009 and 2008, respectively. The decrease in 2009 is
a result of deductions from monthly invoices from the health and dental claims TPA for interest paid
to providers and performance penalties. TPA fees are included in administrative expenses in the
statements of revenues, expenses, and changes in fund equity.
A summary of available coverage and eligible groups for the years ended December 31, 2009 and
2008 is as follows:
Local
State Education government
employee employee employee OPERS TRS COBRA
Health X X X X X X
Dental X X X X X X
Life X X X X X
Disability X X
Medicare supplement X X X
(2) Summary of Significant Accounting Policies
(a) Basis of Accounting
OSEEGIB has prepared its financial statements in accordance with U.S. generally accepted
accounting principles for state and local governments. The Governmental Accounting Standards
Board (GASB) establishes the U.S. generally accepted accounting principles for state and local
governments. GASB requires that proprietary activities apply all applicable GASB pronouncements
and Financial Accounting Standards Board (FASB) Statements and Interpretations, Accounting
Principles Board Opinions, and Accounting Research Bulletins issued on or before November 30,
1989, to the extent that they do not conflict with GASB pronouncements. The entity can elect, at its
option, to apply all FASB Statements and Interpretations issued after November 30, 1989, except for
those that conflict with or contradict GASB pronouncements. OSEEGIB has adopted this option.
(b) Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period.
Management evaluates its estimates and assumptions on an ongoing basis using historical experience
and other factors, including the current economic environment, which management believes to be
reasonable under the circumstances. OSEEGIB adjusts such estimates and assumptions when facts
and circumstances dictate. As future events and their effects cannot be determined with precision,
actual results could differ significantly from these estimates. Changes in those estimates resulting
from continuing changes in the economic environment will be reflected in the financial statements in
future periods.
36
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Notes to Basic Financial Statements
December 31, 2009 and 2008
(Continued)
(c) Investments and Investment Income
Investments are stated at fair value based on quoted prices with changes in fair value included in the
statements of revenues, expenses and changes in fund equity. If quoted prices are not available from
active exchanges for identical instruments, then fair values are estimated using quoted prices from
less active markets, quoted prices of securities with similar characteristics, or by pricing models
utilizing other significant observable inputs. Investments in external investment pools, such as
commingled funds, are stated at fair value based on actual transaction values. The fair value for one
of the commingled funds is $12.49 at December 31, 2008 and the net asset value in the pool of
shares is $12.17. There was no difference in the fair value and the net asset value in the pool of
shares in the commingled fund at December 31, 2009.
OSEEGIB records investment purchases and sales based upon the trade date. Therefore, OSEEGIB
records either receivables or payables for unsettled sales or purchases, respectively. Such
transactions are usually settled within a few days after the trade date.
Realized gains and losses are determined on the average-cost method. The calculation of realized
gains and losses is independent of the calculation of the change in net unrealized gains and losses.
Realized gains and losses on investments that had been held in more than one year and sold in the
current year may have been recognized as unrealized gains and losses in prior years.
Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date.
(d) Office Equipment
Office equipment is recorded at cost and depreciated on a straight-line basis over the estimated
useful lives of the equipment, which range from 5 to 10 years. Purchases of equipment costing less
than $2,500 are considered to be immaterial and are expensed when purchased.
(e) Reserves
OSEEGIB establishes health and dental and life reserves based on the ultimate estimated cost of
settling claims that have been reported but not settled, and of claims that have been incurred but not
yet reported. Disability reserves are also established based on the estimated ultimate cost of settling
claims of participants currently receiving benefits and for disability claims incurred but not yet
reported to OSEEGIB. Long-term disability reserves are carried at the present value of expected
future benefits. The reserves are determined using OSEEGIB’s historical benefit payment
experience. These estimates are based on data available at the time of estimate and are reviewed by
OSEEGIB’s independent consulting actuaries. The health, dental, and life reserves and the disability
reserves include liabilities for claim processing expenses associated with paying claims which have
been incurred, but not yet paid. The length of time for which costs must be estimated depends on the
coverages involved.
37
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Notes to Basic Financial Statements
December 31, 2009 and 2008
(Continued)
Although reserves reflect OSEEGIB’s best estimates of the incurred claims to be paid, due to the
complex nature of the factors involved in the calculation, the actual results may be more or less than
the estimate. The claim reserves are recomputed on a periodic basis using actuarial and statistical
techniques which consider the effects of general economic conditions, such as inflation, and other
factors of past experience, such as changes in participant counts. Adjustments to claim reserves are
recorded in the periods in which they are made. Claims must be filed no later than the last day of the
calendar year immediately following the calendar year in which the loss is sustained unless an
extenuating circumstance can be shown to exist.
Premium deficiency reserves are required to be recorded when the anticipated costs of settling claims
plus policy maintenance costs for the following fiscal year are in excess of the anticipated premium
receipts for the following fiscal year. Anticipated investment income is considered in determining
whether a premium deficiency exists.
(f) Fund Equity
At December 31, 2009 and 2008, OSEEGIB has no legally required minimum fund equity. However,
the Board has elected to set a benchmark for minimum fund equity based upon the National
Association of Insurance Commissioners (NAIC), the Managed Care Organizations Risk Based
Capital Formula for the Health and Dental program, and the NAIC Life/Health Risk Based Capital
Formula for the Life and Disability programs. OSEEGIB utilizes the NAIC Risk Based Capital
methodology to establish the fund equity benchmark. The minimum fund equity benchmark by the
Board at December 31, 2009 and 2008 is approximately $154,276,000 and $139,925,000,
respectively.
The NAIC Risk Based Capital Formulas were selected as the basis for determining minimum fund
equity primarily due to the following factors:
 Degree and nature of the risks undertaken
 Size of OSEEGIB
 Degree of conservatism inherent in the premium rates
 Degree of safety desired
The primary risks that would threaten OSEEGIB’s solvency include the following:
 The risk that claims incurred will exceed premiums collected
 The risk of default or decline in value of OSEEGIB’s assets
 The risk of large monetary judgments stemming from possible lawsuits against OSEEGIB
38
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Notes to Basic Financial Statements
December 31, 2009 and 2008
(Continued)
A comparison of the minimum fund equity benchmark by the Board and unrestricted fund equity at
December 31, 2009 as reported in the basic financial statements is as follows (in thousands):
2009
Health and
Dental Disability
Program Life Program Program Total
Minimum fund equity $ 138,818 10,370 5,088 154,276
Unrestricted fund equity 116,886 17,892 24,657 159,435
A comparison of the minimum fund equity benchmark by the Board and unrestricted fund equity at
December 31, 2008 as reported in the basic financial statements is as follows (in thousands):
2008
Health and
Dental Disability
Program Life Program Program Total
Minimum fund equity $ 125,046 10,086 4,793 139,925
Unrestricted fund equity 67,832 20,282 21,619 109,733
Due to unfavorable claims experience in 2008 combined with the downturn in equity and credit
markets during 2008, OSEEGIB’s fund equity was below the Board’s current benchmark at
December 31, 2008.
As part of the rate setting process, the Board considers OSEEGIB’s total fund equity in comparison
with the minimum fund equity benchmark in setting rates towards achieving the minimum fund
equity benchmark. Title 74 of the Oklahoma Statutes, Section 1321C allows that OSEEGIB may
adjust rates mid-year if the need is substantiated by an actuarial determination. Consistent with prior
years, OSEEGIB does not anticipate the need for a mid-year rate adjustment for 2010.
(g) Premiums
Premiums are recognized in the period when the insurance coverage is provided. Premiums are due
monthly from the employers or participants based on the rates adopted by the Board.
(h) Medicare Part D Subsidy
As a Medicare Part D Prescription Drug Plan (PDP), OSEEGIB receives a monthly payment from
Medicare. The effect of these payments is to subsidize premiums for the individuals enrolled in the
PDP since they pay a reduced premium rate. This amount is approximately $25,173,000 and
$23,817,000 for the years ended December 31, 2009 and 2008, respectively, and is included in
premium revenue within the statements of revenues, expenses, and changes in fund equity.
39
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Notes to Basic Financial Statements
December 31, 2009 and 2008
(Continued)
(i) Pharmacy Rebate
Effective January 1, 1999, under OSEEGIB’s agreement with its pharmacy benefit manager,
OSEEGIB receives a guaranteed rebate for each non-Medicare Part D prescription. Effective
January 1, 2006, OSEEGIB also receives a specified percentage of manufacturers’ rebates received
by the pharmacy benefit manager related to Medicare Part D prescriptions. This amount is
approximately $13,060,000 and $12,145,000 for the years ended December 31, 2009 and 2008,
respectively, and is included in other operating revenue within the statements of revenues, expenses
and changes in fund equity.
(j) Risk Adjustment Premiums
Risk adjustment premiums are received from HMOs based on factors which are applied to premiums
remitted to HMOs for all non-Medicare primary members during the plan year, the factors are
intended to offset any adverse selection that may occur to OSEEGIB as a result of younger, healthier
members electing HMO coverage. This amount is approximately $1,670,000 and $2,147,000 for the
years ended December 31, 2009 and 2008, respectively, and is included in other operating revenue
within the statements of revenues, expenses and changes in fund equity.
(k) Administrative Expenses
Administrative expenses are primarily related to employees of OSEEGIB and professional services,
including fees paid to TPAs to process and pay benefits.
OSEEGIB does not record deferred acquisition costs since administrative expenses are primarily
maintenance expenses and not acquisition expenses. OSEEGIB maintains a budget approved by the
Board; however, it is not a legally adopted annual budget.
(l) Income Taxes
OSEEGIB obtained its latest determination letter dated March 30, 2005, in which the Internal
Revenue Service stated that income from the exercise of the essential governmental functions of
OSEEGIB is exempt from federal income taxes under Section 115 of the Internal Revenue Code
(the Code).
(m) Operating Revenues and Expenses
Balances classified as operating revenues and expenses are those which comprise the OSEEGIB’s
principal ongoing operations. Since OSEEGIB’s operations are similar to those of any other
insurance company, most revenues and expenses are considered operating.
(n) Change in Financial Statement Presentation
During 2006 and 2007, OSEEGIB applied the provisions of GASB Statement No. 43 (GASB 43),
Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, and presented the
portion of its activity related to covered active employees of participating employers as a public
entity risk pool and the portion of its activity related to covered retirees of participating employers as
40
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Notes to Basic Financial Statements
December 31, 2009 and 2008
(Continued)
an agency fund in accordance with the guidance for multiple-employer OPEB (other
post-employment benefits) plans that are not administered as trusts. During 2008, OSEEGIB
determined its activity related to covered retirees of participating employers does not meet the
definition of an OPEB plan and, therefore, is not subject to GASB 43. Additionally, as OSEEGIB is
not a cooperative group of governmental entities joining together to finance exposure to risk,
OSEEGIB determined it is not subject to the guidance for public entity risk pools in
GASB Statement No. 10, Accounting and Financial Reporting for Risk Financing and Related
Insurance Issues. OSEEGIB, as an instrumentality of the State of Oklahoma created to administer,
manage, and provide group health, dental, life, and disability insurance for active employees and
retirees of state agencies, school districts, and other governmental units, believes the preferred
method of accounting and reporting presentation is a special-purpose government engaged solely in
business-type activities, more specifically an insurance enterprise. Effective January 1, 2008,
OSEEGIB changed its financial statement accounting and reporting presentation and reported results
in a single enterprise fund presentation and no longer included an agency fund. Additionally, as a
result of the change in accounting and reporting presentation, disability reserves of approximately
$13,504,000 were required to be recognized and policy maintenance costs of approximately
$2,897,000 were required to be included in the premium deficiency reserve decreasing beginning
fund equity.
The total effect of the change in accounting and reporting presentation on fund equity on January 1,
2008 is as follows:
As originally Effect of
reported As adjusted change
Fund equity, January 1, 2008 $ 187,891,608 171,490,197 16,401,411
(3) Fair Values of Financial Instruments
Accounting Standards Codification Topic 820, Fair Value of Measurements and Disclosures, requires
OSEEGIB to disclose estimated fair values for its financial instruments. Fair value estimates are made at a
point in time, based on relevant market data as well as the best information available about the financial
instruments. Fair value estimates for financial instruments for which no or limited observable market data
is available are based on judgments regarding current economic conditions, credit and interest rate risk,
and loss experience. These estimates involve significant uncertainties and judgments and cannot be
determined with precision. As a result, such calculated fair value estimates may not be realizable in a
current sale or immediate settlement of the instrument. In addition, changes in the underlying assumptions
used in the fair value measurement technique, including discount rate and estimates of future cash flows,
could significantly affect these fair values. Fair value estimates, methods, and assumptions at
December 31, 2009 and 2008 are described below for OSEEGIB’s financial instruments. The carrying
value of all OSEEGIB’s financial instruments approximates fair value.
41
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Notes to Basic Financial Statements
December 31, 2009 and 2008
(Continued)
The carrying amounts reported in the balance sheets are at fair value for investment securities. Fair values
for debt securities are based on quoted market prices, where available. If quoted prices are not available
from active exchanges for identical instruments, the fair values are estimated using quoted prices from less
active markets, quoted prices of securities with similar characteristics, or by pricing models utilizing other
significant observable inputs. The fair values for equity securities are based on quoted market prices.
The carrying values of the receivable for unsettled investment sales, premiums receivable, interest and
dividends receivable, pharmacy rebate receivable, other receivables, premiums due to HMOs and other
insurers, payable for investment purchases, and other accrued liabilities approximate fair value due to the
short maturity of these financial instruments and the fact that they do not present undue credit concerns.
(4) Cash and Cash Equivalents
Cash includes amounts on deposit with the Office of State Treasurer (State Treasurer) in a pooled account,
which is required by the Oklahoma Statutes to be insured or collateralized. The amount of collateral
securities required to be pledged to secure public deposits is established by rules and regulations
promulgated by the State Treasurer. In accordance with the State Treasurer’s policies, the market value of
collateral securities to be pledged by financial institutions through the State Treasurer’s Office must be
110% of the carrying value of the amount on deposit, less any federal insurance coverage.
At December 31, 2009 and 2008, cash totaling $27,219,862 and $23,382,597, respectively, was deposited
with and collateralized by the official bond of the State Treasurer of Oklahoma.
The carrying amount and bank balance of the cash equivalents totaled $56,637,908 and $39,857,874 at
December 31, 2009 and 2008, respectively, and consists of an investment in a mutual fund composed of
short-term investments with an original maturity date of three months or less, which are readily convertible
into cash. The duration of the underlying investments in the money market mutual fund at December 31,
2009 and 2008 is approximately 50 and 55 days, respectively.
Custodial Credit Risk
Custodial credit risk for deposits is the risk that in the event of a bank failure, OSEEGIB’s deposits may
not be returned or OSEEGIB may not be able to recover collateral securities in the possession of an outside
party. OSEEGIB’s cash and cash equivalents include deposits that are insured, registered or for which the
securities are held by a custodian in OSEEGIB’s name.
42
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Notes to Basic Financial Statements
December 31, 2009 and 2008
(Continued)
(5) Investments
OSEEGIB’s investment policy is predicated on a multiple manager structure to provide the benefits of
more than one manager’s special skills and a diversity of investment styles. Upon approval of OSEEGIB’s
Board, external managers are appointed to assume the investment management function. The managers,
within guidelines determined by OSEEGIB’s Board, have full discretion to buy and sell investment assets
of OSEEGIB. Authorized investments are defined in Title 36 of the Oklahoma Statutes, as amended, and
OSEEGIB’s investment policy, and include U.S. government obligations, state and district obligations,
corporate obligations, mortgage-backed and assets-backed debt securities, and preferred and common
stock. All investments held by OSEEGIB are in compliance with statutes and the investment policy.
As of December 31, 2009 and 2008, OSEEGIB had the following investments:
2009 2008
Types of investments Fair values Duration (1) Fair values Duration (1)
Debt securities:
Commingled fund $ 63,935,654 3.85 $ 60,684,844 3.82
Asset-backed securities(2) 2,081,509 1.89 2,260,531 3.55
Corporate 13,846,397 6.31 10,323,072 5.52
Mortgages 15,459,450 3.03 24,765,825 1.88
Collateralized mortgage
obligations(2) 2,579,167 2.75 8,323,285 4.86
U.S. Treasuries 15,699,981 3.62 3,524,051 9.72
Municipals 1,189,688 13.51 — —
Collateralized mortgage-backed
securities (CMBS)(2) 4,486,015 2.52 — —
Total debt securities 119,277,861 109,881,608
Equities:
Domestic 56,070,327 43,885,516
Total investments $ 175,348,188 $ 153,767,124
(1) Interest rate risk is estimated using effective duration (in years).
(2) These include investments highly sensitive to interest rate changes.
43
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Notes to Basic Financial Statements
December 31, 2009 and 2008
(Continued)
Credit Risk
The credit risk profile as listed by Moody’s or Standards & Poor’s for debt securities and money market
mutual funds at December 31, 2009 and 2008 is as follows:
2009
Aaa Aa A Baa/Ba Not rated Total
Debt Securities:
Commingled fund (1) $ — — — — 63,935,654 63,935,654
Asset-backed securities 2,081,509 — — — — 2,081,509
Corporate 1,190,296 1,046,102 5,066,575 6,543,424 — 13,846,397
Mortgages 15,459,450 — — — — 15,459,450
Collateralized mortgage
obligations 2,509,541 — 69,626 — — 2,579,167
U.S. Treasuries 15,699,981 — — — — 15,699,981
Municipals — 1,189,688 — — — 1,189,688
CMBS 3,843,098 — 574,175 68,742 — 4,486,015
Total debt securities $ 40,783,875 2,235,790 5,710,376 6,612,166 63,935,654 119,277,861
Money market mutual funds $ — — — — 56,637,908 56,637,908
2008
Aaa Aa A Baa Not rated Total
Debt Securities:
Commingled fund (1) $ — — — — 60,684,844 60,684,844
Asset-backed securities 1,616,669 643,862 — — — 2,260,531
Corporate 865,465 1,062,245 5,029,890 3,365,472 — 10,323,072
Mortgages 23,218,443 58,098 — — 1,489,284 24,765,825
Collateralized mortgage
obligations 6,560,094 226,316 — — 1,536,875 8,323,285
U.S. Treasuries 3,524,051 — — — — 3,524,051
Total debt securities $ 35,784,722 1,990,521 5,029,890 3,365,472 63,711,003 109,881,608
Money market mutual funds $ — — — — 39,857,874 39,857,874
(1) There is no rating to the commingled fund; however, the average rating of the underlying
investments in the commingled fund as provided by the fund manager is Aa at both December 31,
2009 and 2008.
Credit Risk is the risk an issuer or other counterparty to an investment will not fulfill its obligations. The
Board’s investment policy authorizes OSEEGIB to invest in obligations of the U.S. Treasury, agencies and
instrumentalities, bankers’ acceptances rated AA or better, commercial paper rated A-1 or P-1 and A-2 or
P-2, fixed income investments rated investment grade and stocks of companies with a minimum
capitalization of $50,000,000, and other investments of similar risk.
44
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Notes to Basic Financial Statements
December 31, 2009 and 2008
(Continued)
Investments in “restricted securities,” including fixed income securities, preferred stock, common stock, or
any common stock acquired upon conversion thereof are prohibited. “Restricted securities” are securities
which have not been registered under the Securities Act of 1933 and are subject to restrictions on sale.
Engagements in short sales, purchases on margin, or investments in commodities or transactions of a
similar or speculative nature are prohibited.
Custodial Credit Risk
Custodial credit risk for investments is the risk that, in the event of the failure of the counterparty,
OSEEGIB will not be able to recover the value of its investments or collateral securities in the possession
of an outside party. The current master custodian has been approved by OSEEGIB’s Board. OSEEGIB’s
investments include investments that are insured or registered or for which the securities are held by a
custodian in OSEEGIB’s name. They may also include investments held for the custodian by the Federal
Reserve Bank or Depository Trust Corporation in OSEEGIB’s name.
Concentration of Credit Risk
An increased risk of loss occurs as more investments are acquired from one issuer. No issuer represents 5%
or more of OSEEGIB’s total investments. OSEEGIB’s policy states investments in one issuer shall not
exceed 2.5% of the fair value of each manager’s assets, except for obligations of the U.S. government or of
any state of the U.S. The policy also restricts investments in the common stock of any U.S. corporation to
no more than 5% of each manager’s assets valued at the lower of cost or market value, except where the
manager’s benchmark holds more than 5% in a single issue or with prior consent of OSEEGIB’s Board.
Interest Rate Risk
Interest rate risk is the risk changes in interest rates will adversely affect the fair value of an investment.
Fixed income investments held for longer periods are subject to increased risk of adverse interest rate
changes. OSEEGIB’s policy requires that the total fixed income portfolio maintain an average effective
maturity of 10 years or less and for average duration to be plus or minus 1 year from the benchmark, which
has been identified by management to assess the performance of each manager.
Investment Income
Net investment income (loss) for the years ended December 31, 2009 and 2008, is comprised of the
following:
2009 2008
Fixed income securities $ 5,094,578 6,800,564
Equity securities 1,091,041 1,398,710
Realized losses (2,876,954) (156,263)
Unrealized gains (losses) 17,102,790 (29,802,916)
Less investment expenses (438,206) (580,677)
Net investment income (loss) $ 19,973,249 (22,340,582)
45
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Notes to Basic Financial Statements
December 31, 2009 and 2008
(Continued)
(6) Office Equipment
The changes in office equipment for the years ended December 31, 2009 and 2008 are as follows:
2009 2008
Office equipment, at cost:
Balance, beginning of year $ 4,438,752 4,282,241
Additions 132,124 169,559
Retirements (406,976) (13,048)
Balance, end of year 4,163,900 4,438,752
Accumulated depreciation:
Balance, beginning of year 3,728,534 3,425,945
Depreciation expense 232,900 315,637
Retirements (406,976) (13,048)
Balance, end of year 3,554,458 3,728,534
Office equipment, net $ 609,442 710,218
(7) Health and Dental and Life Reserves
The following represents changes in the Health and Dental and Life Reserves during the year ended
December 31, 2009 (in thousands):
Health
and Dental Life Total
Reserves, beginning of year $ 93,771 4,708 98,479
Incurred claims expense provisions for
insured events of the current year 782,521 22,474 804,995
Changes in provisions for
insured events of prior years 10,425 1,300 11,725
792,946 23,774 816,720
Less payments:
Claims expense insured events of the
current year 684,927 19,476 704,403
Claims expense insured events of
prior years 98,986 4,193 103,179
783,913 23,669 807,582
Reserves, end of year $ 102,804 4,813 107,617
46
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Notes to Basic Financial Statements
December 31, 2009 and 2008
(Continued)
As a result of changes in estimates of insured events in prior years, the provision for claims increased by
approximately $11,725,000 in the year ended December 31, 2009, due primarily to less favorable than
anticipated claims experience.
The following represents changes in the Health and Dental and Life Reserves during the year ended
December 31, 2008 (in thousands):
Health
and Dental Life Total
Reserves, beginning of year $ 84,797 3,787 88,584
Incurred claims expense provisions for
insured events of the current year 764,751 21,540 786,291
Changes in provisions for
insured events of prior years 1,187 (536) 651
765,938 21,004 786,942
Less payments:
Claims expense insured events of the
current year 673,810 17,241 691,051
Claims expense insured events of
prior years 83,154 2,842 85,996
756,964 20,083 777,047
Reserves, end of year $ 93,771 4,708 98,479
As a result of changes in estimates of insured events in prior years, the provision for claims increased by
approximately $651,000 in the year ended December 31, 2008, due primarily to less favorable than
anticipated claims experience.
47
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Notes to Basic Financial Statements
December 31, 2009 and 2008
(Continued)
(8) Disability Reserves
The following represents changes in the disability reserves during the years ended December 31, 2009 and
2008 (in thousands):
2009 2008
Reserves, beginning of year $ 13,299 13,504
Incurred claims:
Provisions for insured events of the current year 4,782 4,756
Changes in provisions for insured events of prior years (1,127) (2,669)
3,655 2,087
Payments:
Claims attributable to insured events of the current year 584 448
Claims attributable to insured events of prior years 2,561 1,844
3,145 2,292
Reserves, end of year $ 13,809 13,299
OSEEGIB estimates current and noncurrent reserves for disability reserves based on historical claim
experience.
As a result of changes in estimates of insured events in prior years, the provision for disability reserves
decreased by approximately $1,127,000 and $2,669,000 in the years ended December 31, 2009 and 2008,
respectively, due primarily to favorable claims development.
The following is a brief description of the significant assumptions used for disability reserves:
 Actual claim experience for the group, based upon claim lag studies, was used for males and
females for short-term disability.
 The 1987 Commissioner’s Group Disability Table was used.
 The discount rate was 3.5% for the years ended December 31, 2009 and 2008, respectively.
(9) Premium Deficiency Reserve
A premium deficiency reserve is recorded at the end of the year when the anticipated costs of settling
claims plus policy maintenance costs for the following year are in excess of the anticipated premium
receipts for the following year. Anticipated premium receipts are projected based on the premium rates
adopted by the Board for the following plan year and current enrollment levels. Anticipated investment
income is considered in determining whether a premium deficiency exists. Incurred claims for subsequent
48
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Notes to Basic Financial Statements
December 31, 2009 and 2008
(Continued)
years are projected based on current year incurred claims, increased for anticipated inflation rates. The
Board does not have the intention to change the adopted premium rates after the fiscal year has begun.
OSEEGIB determined that reserves for premium deficiency were necessary as of December 31, 2008 in
the amount of $11,915,000, and no premium deficiency reserve was necessary as of December 31, 2009.
(10) Employee Benefit Plans
For the fiscal year ended December 31, 2008, OSEEGIB implemented GASB Statement No. 50, Pension
Disclosures – an amendment of GASB Statements No. 25 and No. 27.
GASB Statement No. 50 amends GASB Statement No. 27 to require employers participating in a
cost-sharing plan to include the following in the note disclosure: the required contribution rates and the
employer(s) in dollars and the percentage of that amount contributed for the current year and each of the
two preceding years, and how the contractually required contribution rate is determined (for example, by
statute or by contract, or on an actuarially determined basis) or that the cost-sharing plan is financed on a
pay-as-you-go basis.
GASB Statement No. 50 also amends GASB Statement No. 27 to require that if a cost-sharing plan does
not issue a publicly available stand-alone plan financial report prepared in accordance with the
requirements of GASB Statement No. 25, as amended, and the plan is not included in the financial report
of another entity, each employer in that plan should present, as required supplementary information, the
schedules of funding progress and employer contributions for the plan (and notes to their schedules). Also,
each employer should disclose that the information presented relates to the cost-sharing plan as a whole, of
which the employer is one participating employer, and should provide information helpful for
understanding the scale of the information presented relative to the employer. OSEEGIB has made all
required disclosures under GASB Statement No. 50.
(a) Retirement Plan
OSEEGIB contributes to the Oklahoma Public Employees Retirement Plan (the Retirement Plan), a
cost-sharing multiple-employer public employee retirement system administered by the Oklahoma
Public Employees Retirement System (OPERS). The Retirement Plan provides retirement, disability,
and life benefits to Retirement Plan members and beneficiaries. The benefit provisions are
established and may be amended by the legislature of the state of Oklahoma. Title 74 of the
Oklahoma Statutes, Sections 901-943, as amended, assigns the authority for management and
operation of the Retirement Plan to the Board of Trustees of OPERS. OPERS issues a publicly
available annual financial report that includes financial statements and required supplementary
information for the Retirement Plan. That annual report may be obtained by writing to OPERS, 6601
N. Broadway Extension, Suite 129, Oklahoma City, Oklahoma, 73116 or by calling 800.733.9008.
Retirement Plan members, state employees and OSEEGIB are required to contribute at a rate set by
statute. The contribution requirements of Retirement Plan members and OSEEGIB are established
and may be amended by the legislature of the state of Oklahoma. Each member participates based on
his or her gross salary earned (excluding overtime).
49
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Notes to Basic Financial Statements
December 31, 2009 and 2008
(Continued)
The contribution rate for OSEEGIB and employees for 2009, 2008, and 2007 is as follows:
Employee rate
Salaries
Salaries greater than
$25,000 or less 25,000 Employer rate
July 1, 2009 – December 31, 2009 3.5% 3.5% 15.5%
July 1, 2008 – June 30, 2009 3.5 3.5 14.5
July 1, 2007 – June 30, 2008 3.5 3.5 13.5
January 1, 2007 – June 30, 2007 3.5 3.5 12.5
OSEEGIB’s contributions to the Retirement Plan for the years ended December 31, 2009, 2008, and
2007 were approximately $1,224,000, $1,140,000, and $1,052,000, respectively, and were equal to
OSEEGIB’s required contributions for the year. Contributions are included in administrative
expenses in the statements of revenues, expenses and changes in fund equity.
(b) Deferred Compensation Plan
The State offers to its own employees, state agency employees, and other duly constituted authority
or instrumentality employees a deferred compensation plan created in accordance with Internal
Revenue Code Section 457 and Chapter 45 of Title 74, Oklahoma Statutes. The Oklahoma State
Employees Deferred Compensation Plan (SoonerSave) is a voluntary plan that allows participants to
defer a portion of their salary into SoonerSave. Participation allows a person to shelter the portion of
their salary that they defer from current federal and state income tax. Taxes on the interest or
investment gains on this money, while in SoonerSave, are also deferred. The deferred compensation
is not available to employees until termination, retirement, death, or approved unforeseeable
emergency.
Under SoonerSave, the untaxed deferred amounts are invested as directed by the participant among
various investment options. Effective January 1, 1998, a Trust and Trust Fund covering SoonerSave
assets was established pursuant to federal legislation enacted in 1996, requiring public employers to
establish such trusts for plans meeting the requirements of Section 457 of the Internal Revenue Code.
Under terms of the Trust, the corpus or income of the Trust Fund may be used only for the exclusive
benefit of SoonerSave participants and their beneficiaries. Further information may be obtained from
the Oklahoma State Employees Deferred Compensation Plan audited financial statements for the
year ended June 30, 2009. OSEEGIB believes it has no liabilities with respect to SoonerSave.
50
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Notes to Basic Financial Statements
December 31, 2009 and 2008
(Continued)
(11) Compensated Absences
It is OSEEGIB’s policy to accrue compensated absences for annual leave, including the related employer’s
share of social security and Medicare taxes, in accordance with state statute, not to exceed:
 240 hours for employees with continuous service of less than five years, or
 480 hours for employees with continuous service of five years or more.
During 2009, OSEEGIB’s liability for compensated absences increased by approximately $94,000 for
99 employees, decreased by approximately $85,000 for 65 employees, and did not change for
14 employees.
During 2008, OSEEGIB’s liability for compensated absences increased by approximately $100,000 for
101 employees, decreased by approximately $67,000 for 64 employees, and did not change for
13 employees.
OSEEGIB’s liability for compensated absences at December 31, 2009 and 2008, amounted to
approximately $924,000 and $915,000, respectively, and is included in other accrued liabilities in the
balance sheets.
(12) Operating Leases
OSEEGIB has agreements for one-year commitments to lease office space and equipment with options to
renew for additional periods. If the leases are renewed in accordance with the options in the agreements,
the future minimum rentals for operating leases as of December 31, 2009, are as follows:
2010 $ 553,541
2011 226,857
2012 117,962
2013 112,548
$ 1,010,908
Rent expense for office space and equipment for the years ended December 31, 2009 and 2008 was
approximately $616,000 and $723,000, respectively, and is included in administrative expenses in the
statements of revenues, expenses and changes in fund equity.
(13) Risks and Uncertainties
OSEEGIB invests in various investment securities. As described in note 5, investment securities are
exposed to various risks such as interest rate, market and credit risks. It is at least reasonably possible that
changes in the values of investment securities will occur in the near term, and such changes could
materially affect the amounts reported in the balance sheets.
51
OKLAHOMA STATE AND EDUCATION EMPLOYEES
GROUP INSURANCE BOARD
(A Component Unit of the State of Oklahoma)
Notes to Basic Financial Statements
December 31, 2009 and 2008
As described in note 2, the estimates of reserves are determined based on actuarial and statistical
techniques, which considers the effects of general economic conditions, such as inflation, and other factors
of past experience, such as changes in participant counts, all of which are subject to change. Due to
uncertainties inherent in the estimation and assumption process, it is at least reasonably possible that
changes in these estimates and assumptions in the near term would be material to the financial statements.
(14) Commitments and Contingencies
OSEEGIB’s legal counsel has determined that the statute of limitations for claims denied or paid
improperly is three years. Typically, all claims are reported within a 24-month period. Currently,
OSEEGIB is not aware of any material claims that were denied or paid improperly that should be reserved
for in the basic financial statements. To the extent such claims exist, OSEEGIB may be responsible for
payment.
During 2003, the Oklahoma Legislature created the Medical Expense Liability Revolving Fund (the Fund),
which enacted a fee to cover inmate medical costs. By law, OSEEGIB is the administrator of the Fund.
Any person convicted of certain offenses is required to pay a fine of $10, which goes into the Fund. The
monies from the Fund are used when an inmate’s medical costs exceed $15,000 up to a maximum of
$100,000. As of December 31, 2009 and 2008, the Fund has assets and liabilities of approximately
$1,071,000 and $940,000, respectively, which are included in the balance sheets.
During 1995, the Oklahoma Legislature created the Health Insurance High Risk Pool (the Pool), which was
designed to provide health insurance for certain state residents who are unable to obtain coverage through
other insurers. All insurers and reinsurers providing health insurance or reinsurance in the state of
Oklahoma are required to participate in the Pool. With the exception of OSEEGIB, all self-insured plans
are exempted from participation. Participating insurers are assessed periodically. OSEEGIB has recorded
assessments totaling approximately $2,101,000 and $2,135,000 during the years ended December 31, 2009
and 2008, respectively, which is included in administrative expense in the statements of revenues, expenses
and changes in fund equity. Participating insurers may also be assessed additional amounts if the Pool
experiences adverse claim development.
In the normal course of operations, there are various legal actions and proceedings pending against
OSEEGIB. In management’s opinion, the ultimate liability, if any, resulting from these legal actions will
not have a material adverse effect on OSEEGIB’s financial position, results of operations, or liquidity.
Section
Statistical
2009 2008 2007 (2) 2006 (2) 2005 2004 2003 2002 2001
Short (1)
2001 2000
Minimum fund equity
Fixed assets net of accumulated depreciation
Other fund equity
Total fund equity
Minimum fund equity
Other fund equity
Total fund equity
Minimum fund equity
Other fund equity
Total fund equity
Minimum fund equity
Fixed assets net of accumulated depreciation
Other fund equity
Total fund equity
$ 138,818
609
(21,931)
117,496
10,370
7,522
17,892
5,088
19,569
24,657
154,276
609
5,160
$ 160,045
125,046
710
(57,214)
68,542
10,086
10,196
20,282
4,793
16,826
21,619
139,925
710
(30,192)
110,443
120,344
856
(372)
120,828
10,106
14,670
24,776
5,083
20,803
25,886
135,533
856
35,101
171,490
116,936
1,340
(2,831)
115,445
9,399
11,060
20,459
4,485
22,399
26,884
130,820
1,340
30,628
162,788
106,302
1,838
12,231
120,371
8,293
11,530
19,823
4,061
21,698
25,759
118,656
1,838
45,459
165,953
93,482
2,344
20,738
116,564
6,271
13,565
19,836
4,421
21,332
25,753
104,174
2,344
55,635
162,153
84,064
2,777
(4,702)
82,139
6,111
12,552
18,663
3,971
21,397
25,368
94,146
2,777
29,247
126,170
72,050
2,253
(23,530)
50,773
5,375
12,933
18,308
2,944
19,896
22,840
80,369
2,253
9,299
91,921
67,070
1,791
(13,334)
55,527
5,728
15,791
21,519
3,128
24,008
27,136
75,926
1,791
26,465
104,182
59,022
813
39
59,874
5,177
15,200
20,377
3,434
25,222
28,656
67,633
813
40,461
108,907
53,424
760
7,235
61,419
5,519
17,628
23,147
3,641
24,529
28,170
62,584
760
49,392
112,736
Fund Equity Over the Last Ten Years
(Accrual basis of accounting) l (Amounts expressed in thousands)
(1) OSEEGIB moved to a calendar year on January 1, 2002 from a June 30 fiscal year.
(2) The 2007 and 2006 financial information has been adjusted to reflect the change in accounting principle and reporting presentation for comparability purposes.
Life Program
Disability Program
Combined Programs
Health & Dental Program
Table 1
52
2009 2008 2007 (4) 2006 (4) 2005 2004 (2) 2003 (2) 2002 2001
Short (3)
2001 2000
Expenses
Health and Dental Program
Benefits including claim reserves
Change in premium deficiency reserves
Administrative and claim processing expense
$ 792,950
(11,915)
36,125
765,931
(12,712)
36,830
731,807
24,627
39,807
700,005
(9,065)
38,091
657,653
9,065
33,465
576,243
-
29,311
521,914
-
29,307
440,794
-
26,872
200,799
-
13,077
362,374
-
26,771
326,370
-
24,014
Total Health and Dental Program expense 817,160 790,049 796,241 729,031 700,183 605,554 551,221 467,666 213,876 389,145 350,384
Life Program
Benefits including claim reserves
Change in premium deficiency reserves
Administrative and claim processing expense
23,774
-
897
21,005
-
726
15,278
-
811
17,305
-
757
16,097
-
693
14,433
-
719
14,042
-
774
13,215
(2,068)
786
4,497
(1,100)
358
10,917
800
719
10,460
(402)
738
Total Life Program expense 24,671 21,731 16,089 18,062 16,790 15,152 14,816 11,933 3,755 12,436 10,796
Disability Program
Benefits including disability reserves
Administrative and claim processing expense
3,652
1,401
2,093
1,161
6,052
604
3,702
956
3,234
831
3,962
687
2,555
636
2,947
696
1,549
297
953
721
606
683
Total Disability Program expense 5,053 3,254 6,656 4,658 4,065 4,649 3,191 3,643 1,846 1,674 1,289
Combined Programs
Benefits including claim and disability reserves
Change in premium deficiency reserves
Administrative and claim processing expense
820,376
(11,915)
38,423
789,029
(12,712)
38,717
753,137
24,627
41,222
721,012
(9,065)
39,804
676,984
9,065
34,989
594,638
-
30,717
538,511
-
30,717
456,956
(2,068)
28,354